Steven Goldman - President, CEO & Director Chris Witty - Darrow Associates Richard Ambury - CFO, Executive VP, Treasurer & Secretary

Good morning, and welcome to the Star Group Fourth Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Steve Goldman, Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining us today. With me is Star's Chief Financial Officer, Rich Ambury. After some brief remarks, Rich will review the fourth quarter and fiscal year ended September 30, 2017. 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 company's expectations and beliefs concerning future events that involve risks and uncertainties, and may cause 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 Star Group believes that the expectations reflected in such forward-looking statements are reasonable, we 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 and in our quarterly reports and annual report and Form 10-K for the fiscal year ended September 30, 2017. 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, Star Group undertakes no obligation to publicly update or revise any forward-looking statement, 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. This year served as an important reminder of several key aspects of our business. First, weather is a critical component of our success and profitability, and must remain an important focus for our team, regardless of what aspirations we have for the growth and development of our company. For a second year in a row, weather was much warmer than we expected, while at the same time, we saw a steady increase in the price of heating oil and propane costs. So in essence, we had a year where customers may have lost their appreciation for the true nature of what we deliver, which is excellent customer service. And the rising prices left them wondering whether to change their energy providers at all. We feel strongly that our fundamental business models continues to strengthen and is functioning well despite our EBITDA not reflecting positive results. There are many aspects of financial 2017 we believe are important to discuss. I will focus the rest of my comments on these issues. We have continued our geographic expansion this past year through both acquisitions and organic business development initiatives. In fiscal 2017, we closed on seven acquisitions, including two this past quarter. One of these was a second acquisition in the state of Michigan, which is very exciting as we continue to expand our footprint further westward. Organic account growth has also been very strong. The brands and offerings we've introduced are being positively received, and we are optimistic that continuing in this direction will be beneficial for future growth. We are assessing which areas will provide the quickest return on our investment and that result in additional long-term growth opportunities. Continuing the discussion around strategies to grow business, it is important to address an issue that, for a couple of years, has taken a real effort to get our arms around, by which I mean, customer attrition. As you may recall, fiscal 2016 was severely impacted by warm weather and other factors, driving net attrition above 5%. But I am happy to say we have just completed one of our best years for customer retention and have a good sense that much of the success can be attributed to new processes we -- and systems and other programs we have put in place over the past two years. We are very proud of this year's reduction in net attrition to just 1.5%, a combination of both higher customer gains and lower losses. For that matter, our customer losses was the lowest in recent memory. With the combination of stretching our territory, continued acquisition activity, product expansion and diminished attrition, the need to attract and retain strong talent at Star Group is more critical now than ever. We have dedicated great effort in the past year to strengthening our team's ability in this area and believe our approach will become even more meaningful as time progresses. We have also spent a great deal of time assessing structural aspects of our organization. There are two important examples, this I'd like to mention because they took enormous effort to get done properly. The first was the opening of a new consolidated customer service center in Newtown, Pennsylvania serving certain nearby regions. This project was completed in a relatively short period of time and has already proven to be a great enhancement to our Mid-Atlantic operations. The initiative illustrated what the passion and zeal of a truly committed team could accomplish. The second very notable event revolves around our tax structure, which consummated with a unitholder vote in October and an accompanying corporate name change. We believe the decision to improve our company in this way was beneficial for many reasons, including lowering certain administrative expenses and potentially enticing new institutional investors to take a look at Star Group. The very large task was led by our CFO, Rich Ambury, and we are grateful for his efforts and the commitment of his team to getting this done. In closing, while there are many successes this fiscal year, we're guarded in our praise, given that all such accomplishments hold less meaning if we cannot improve the business' profitability. I mention this as a reassurance to our stakeholders, as this remains our primary focus. As always, I must thank our tremendous team for managing through such difficult year. We have many great opportunities in front of us as a company, and I appreciate the support from all of our customers, employees and investors. And with that, I'll turn the call over to Rich Ambury to provide some comments on the quarter and the year's results. Rich?

Thanks, Steve, and good morning, everyone. For the fourth quarter of fiscal 2017, the volume of home heating oil and propane increased by 10% versus the same quarter a year ago to 22.6 million gallons, while the volume of other petroleum products sold increased by 3% year-over-year to 29 million gallons. The higher volumes across all product categories during this non-heating season were largely due to acquisitions. Heating oil and propane margins declined in the base business by more than $0.04 per gallon versus 2016 to approximately $1.09 per gallon, primarily due to lower margins on sales to price-protected customers, which were reflected by an increase in wholesale product cost of over $0.20 per gallon. We posted a net loss for the quarter of $18 million, an improvement of $1.4 million versus the prior year period as a favorable change in the fair value of derivative instruments of $11 million was more than offset by higher operating expenses in the base business of $6 million. The $6 million increase in operating expenses consists of $2.7 million of higher insurance expense, and that was really largely due to the timing of insurance expense accruals as insurance expense over the last three years have been within a range of about $1 million and $1.5 million between the years. We also had $600,000 in higher legal expenses due to the check-the-box exercise and $800,000 more in sales and marketing expenses due in part to a 5,700 account loss improvement. In addition, we spent another $1 million in customer service due to staffing and software costs and another $900,000 in IT and operations. Also impacting net income was higher depreciation and amortization of expense. And our newly-acquired acquisitions had an adjusted EBITDA loss of $700,000. The adjusted EBITDA loss for the quarter increased by $8 million to a loss of $29 million, primarily due to the higher operating expenses in the base business, as I just mentioned. Now let's look at the full year financial results. The total volume of home heating oil and propane sold increased by 14 million gallons or 5% to 317 million gallons, as the positive impact provided by acquisitions in colder weather was only partially offset by net customer attrition and other factors. Temperatures in Star's geographic areas of operations for fiscal 2017 were 7% colder than last year, albeit 12% warmer than normal. Our product gross profit did increase by $18.5 million to $390 million, largely due to the increase in home heating oil and propane volumes sold, and to a lesser extent, slightly higher home heating oil and propane margins. Excluding the impact of a $12.5 million credit recorded in fiscal 2016 under our weather hedge contract, delivery and branch expenses rose by nearly $18 million year-over-year, reflecting higher delivery expense of $2.5 million in the base business due in part to the weather-related increase in home heating oil and propane volume; costs related to acquired entities of $4.5 million; and an increase in spending of $7.7 million, primarily on additional staffing in the areas of information technology, customer service, human resources, operation management and sales and marketing. We believe that this investment though did positively impact the 16,700 account improvement in net customer attrition for fiscal 2017. We recorded a noncash credit of $2 million for our derivatives during fiscal 2017, while the prior year's comparable period, we recorded a credit of $18 million. We posted net income of $27 million for fiscal 2017, $18 million less than fiscal 2017. Our adjusted -- excuse me, 2016. Our adjusted EBITDA loss decreased by $15 million or 15% to $81 million as the impact from higher volume of home heating oil and propane sold and slightly better per gallon margins were more than offset by the absence of a $12.5 million credit as recorded in fiscal 2016 under our weather hedge contract; lower service and installation gross profit, largely attributable to the colder temperatures experienced in the winter time period; and additional costs related largely to staffing in the areas of information technology, customer service, sales and marketing, human resources and operations. Now moving over to the balance sheet. At the end of September, we had cash of $52 million, zero borrowings under our working capital facilities and $78 million of long-term debt. 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 for taking the time to join us today and for your ongoing interest in Star Group. We look forward to sharing our first quarter 2018 results with you in February. Have a great holiday season, and we hope it's a very cold one.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.