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

Stephen Errico - Locust Wood Capital

Good morning, and welcome to the Star Gas Partners Fiscal 2016 Fourth Quarter Results Conference Call. All participants will be in a 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, CEO. Please go ahead sir.

Good morning and thank you for joining us today. With me today is Star’s Chief Financial Officer, Rich Ambury and after some brief remarks, Rich will review the fourth quarter and fiscal year ending September 30, 2016. We will then take your questions. Before we begin, Jordan Darrow, our investor relations from Darrow Associates will read the Safe Harbor Statement. Please go ahead, Jordan.

Thanks Steven, good morning everyone. 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 annual report and Form 10-K for the fiscal year ended September 30, 2016. 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, Jordan. With fiscal 2016 now behind us, we feel confident that Star Gas responded as well as possible to very unfavourable weather conditions which fully shaped the disappointing results this year. The final quarter saw us manage our expenses and execute the business with sound discipline as we prepared for the upcoming winter season. And while we controlled the operating cost as best we could, we also continued to work to serve our customers better. The past year was clearly not a good one in terms of net customer attrition either but this was primarily due to a significant reduction in new accounts. The lack of account wins was closed by a big drop in market churn due to 22% warmer weather versus last year along with continued low product pricing neither of which drives customers to look for different providers. We believe that our undeterred efforts can improve Star Gas’s ability to compete in the market place we currently serve as well as those we are expanding into and I’ll talk more about our customer service initiatives in a moment. During the past year we were able to acquire four relatively small operations and even though these acquisitions were not significant in terms of size, they were still important to our growth plans. [Indiscernible] good geographic diversity which is critical to expanding and strengthening our footprint. We also just recently in December purchased our first organization in Michigan, and we are very excited to have a presence in the Midwest now to further diversify our operations. We actually spent a good deal of time this year looking at acquisitions within our footprint and outside our footprint, but ultimately decided most were not the right fit for us. We also continued to invest in the expansion initiatives to grow the business organically and these steps have shown great promise. We believe there are many areas where home owners should be very receptive to the type of service we offer as a company. We believe this focus has on organic growth combined with our pursuit of well suited acquisitions will keep our business moving in the right direction, expanding both geographically and across service offerings. Internally our efforts have been geared towards two of our greatest priorities, our customers and our people. For the former we are now very focussed on hearing the voice of the customer. We have begun to create new channels of communication to become even more responsive and reliable as a company and while we are only in the beginning stages of this change, we believe we are already seeing some positive impact from our customer improvement strategies which allow us to understand our customer’s issues more quickly. We also know that a key component to obtaining excellent service is attracting and retaining the best trained staff possible. We’ve put many new programs in place to improve the recruitment of the type of talent we need and then train them better as well. We’re focused on making Star Gas as a greater place to work and grow with us going forward even as the employment landscape appears to have gotten more competitive this year. I believe we are responding well to these challenges and have the resources we need to be a stronger company in the future. At the end of the day we know our overriding priority is to produce sustained long term value for our investors, and in that vein during the past twelve months we also repurchased 1.4 million common units and were able to sustain our distribution through solid management of the business. In closing, I’d like to thank our employees for their efforts and results. We have a great team that are unbelievably committed to serving our customers, and I am very proud of what we have done this year despite the operating environment we faced. With that, I’ll turn the call over to Rich Ambury to provide some comments on the quarter and years results. Rich.

Thanks Steve. For the fourth quarter of fiscal 2016, home heating oil and propane volumes sold decreased by a little over 2% versus the same quarter last year to 20.6 million gallons while the volume of other petroleum products sold increased by 10% to 28 million gallons. Home heating oil and propane margins declined by over $0.07 year-over-year to approximately $1.13 per gallon. As you might recall during last year’s fourth quarter, we experienced an unusually high $0.26 per gallon margin increase during this non heating period with relatively low overall volume. Total product gross profit fell by $2 million due to lower margins and a slight decline in volume in home heating oil and propane volume. Delivery and branch expenses for the quarter declined by 3% or $1.5 million. General and administrative expenses also declined by $1 million, and our service and installation net profit ability improved by over $1 million. We posted a net loss for the quarter of $19 million, which was $26 million less than the prior year period reflecting the absence of certain charges recorded during the three months ending September 30, 2015. During that quarter, the partnership booked a non-cash charge of $18 million relating to a multi employer pension plan and a charge of $7 million related to redeeming and refinancing the partners 8.875% senior notes. Also contributing to the lower net loss were the following: A favourable change of $12 million and the fair value of derivative instruments, a reduction in adjusted EBITDA loss of $2 million and lower net interest expense of $1.3 million. The adjusted EBITDA loss for the quarter decreased by $2 million to a loss of $21 million, primarily due to lower operating expenses somewhat offset by decline in home heating oil and propane margins. Now let’s review the full year’s results. Home heating oil and propane volumes sold decreased by 80 million gallons or 21% to 303 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 impacting volume. Temperatures in our geographic areas of operations for fiscal 2016 were 22% warmer than last year’s comparable period and 18% warmer than normal. Our gross profit declined by 8 [ph], our product gross profit declined by 18% or $83 million as 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 this per gallon margin expansion. In our delivery and branch expenses, we recorded a $12.5 million credit under our weather hedge contract. Outside of this, delivery in branch expenses rose by $10 million due to acquisitions, but were reduced by $26 million largely due to the response of the warmer weather and additional $4 million due to lower bad debt expense. General and administrative expenses were also lower by $2.5 million, largely due to lower compensation cost driven by the warmer weather. For the year, we recorded a non-cash credit of $18 million for our derivatives during fiscal 2016 and the prior year’s comparable period we recorded a charge of $4 million. Happy to say that interest expense decreased by $6.6 million this fiscal year, the result of refinancing our GAAP with a term loan at lower variable interest rates towards the tail end of last fiscal year. We posted net income of $45 million for fiscal 2016, $7 million more than fiscal 2015, reflecting the items I just mentioned as well as the absence of the 25 million of charges that were recorded in the fourth quarter of fiscal 2015. Our adjusted EBITDA loss decreased by $45 million to $95.7 million as the impact of slightly 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 the $12.5 million credit recorded under Star’s weather contract were more than offset by the impact on adjusted EBITDA of the decline in home heating oil and propane volume attributable to the 22% warmer weather. Now moving over to the balance sheet. At the end of September, we had cash of $139 million, zero borrowings under our revolving credit agreement and $92 million of long-term debt. In fiscal 2017, we expect to repay about $16.2 million of this term loan facility. And with that, I’d like to turn the call back over to Steve.

Thanks Rich. At this time, we’ll be pleased to address any questions you may have. Operator, please open the phone lines for questions.

Thank you, Mr. Goldman. We will now begin the question-and-answer session [Operator Instructions]. It looks like we have no questions, so this will conclude the question and answer session. I would now like to turn the conference back over to Steven Goldman for any closing remarks. Well I apologise, we did get one question last second. It’s from Stephen Errico with Locust Wood Capital. Please go ahead sir.

Hi guys, how are you?

Good Steve.

Good, thank you for allowing me to ask a question here. I just have a question, couple of questions, number one on the acquisition front; you guys have been a little bit more active over the last couple of years. Have the multiples expanded from what we and could you describe what type of multiples you are paying for these acquisitions? Generally, you are not giving me specifics but you know just...

I don’t really think that overall the multiples have expanded. I think we’ve seen movement in both directions. It’s certainly pressure at the top in certain market places in the propane arena. We try to stay very disciplined on how we evaluate businesses and we look for what people sell business for just like everything else in the open market place, its supply and demand but we try not to get into a situation where we are caught up and someone else wants something so we overpay. We pay based on what we think the value is to our business going forward, and we really haven’t deviated our range and its -- purchase businesses as low as three times EBITDA and some have stretched over seven times in the propane space, but we’ve – that’s been kind of consistent throughout five years now.

Okay. And I notice the geographic diversification, you guys are great at you know being disciplined on the cost side, does the geographic diversification of business make it a little harder to control cost and get synergies, how should I think about that? On the one hand, Michigan is exciting, but you know it’s not Long island.

Well we’re not on Long island; we’ve just been on Long island for you know the better part of...

Well you know...

So what we have done is try to organically expand where we already have purchased an acquisition and we can grow, continue it to where we are already set up, most of our back office synergies have little to do with geography with repurchasing supply or equipment that’s fully mobilised doesn’t really matter where we offer that. We don’t answer calls for or locations out of one place and we like the local business, we look for places that are large enough to buy that they are profitable independently and when we evaluate them we look at them in terms of our expenses and our expense structure is going to be too burdensome for the long range reality of that business to be accretive to the business. I think we have a pretty good rhythm on how to do this, with straight away from places that are five and six hours out of our reach. You know we did the same thing with South Carolina, five and six years ago and now we’ve built backwards off of that, and we’re building back buying businesses and organically expansion going from Virginia down to the Carolinas and I expect we’ll do the same from Pennsylvanian out to the Midwest. I mean we are looking for an anchor, we looked at potential businesses in seven to eight in the Midwest in the last two years and this is one that fell within the range of our appetite for what we would be willing to spend and the quality of the business that we felt was a good move.

Right. Just one more question or either comment. Rich in the quarter, you know the cash generated from working capital was a little bit less than a year ago. I think last year we had lot more of the receivable turn into cash versus this year. Is that just random each year, how should I think about – because that’s how I look at your business. It’s hard -- I try to look at like you know what’s the cash managed to debt, and you have taken the working capital but just curious this fourth quarter in particular we seem to generate a little bit less cash from the balance sheet than last year.

Yes, you are absolutely right. There is less receivables kind of hung up at the end of March and at the end of June this year versus last year, so there is less receipts to come in. It’s just that kind of simple.

Okay. All right. And last I’d just say to you guys, we've been and you're stuck for anybody who's been on this call since March of 2006 and I was just running it without worrying about it and this is a pretty low tech company. You guys have made us 550% or a 19% return on our investment versus the S&P of 7%. So Locust Wood says thank you very much and keep up the great work.

We appreciate that.

We appreciate that comment.

Okay guys. Thanks again, have a great holiday.

You too.

[Operator Instructions] We have no further questions. So this will conclude our question and answer session. I would now like to turn the conference back over to Steven Goldman for any closing remarks.

Thank you, 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 first quarter 2017 results with you in February.

The conference has now concluded. Thank you all for attending today’s presentation. You may now disconnect your lines.