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Star Group, L.P. Reports Fiscal 2020 Second Quarter Results

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STAMFORD, Conn., May 04, 2020 (GLOBE NEWSWIRE) -- Star Group, L.P. (the "Company" or "Star") (SGU), a home energy distributor and services provider, today announced financial results for the fiscal 2020 second quarter and six months ended March 31, 2020.

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
For the fiscal 2020 second quarter, Star reported a 22.4 percent decrease in total revenue to $543.1 million compared with $699.6 million in the prior-year period, primarily due to the impact of lower volumes sold and reduced selling prices. The decline in selling prices was largely attributable to a decrease in product cost.

The volume of home heating oil and propane sold during the fiscal 2020 second quarter decreased by 37.1 million gallons, or 21.4 percent, to 136.2 million gallons, as the positive impact from acquisitions was more than offset by warmer temperatures, net customer attrition, and other factors. Temperatures in Star's geographic areas of operation for the fiscal 2020 second quarter were 18.2 percent warmer than during the fiscal 2019 second quarter and 21.2 percent warmer than normal, as reported by the National Oceanic and Atmospheric Administration.

Net income decreased by $13.9 million, or 19.2 percent, to $58.4 million in the fiscal 2020 second quarter as a non-cash unfavorable change in the fair value of derivative instruments of $25.1 million more than offset an increase in Adjusted EBITDA of $7.4 million, as described below. The unfavorable change in the fair value of derivative instruments was the result of recording, a non-cash charge of $11.7 million during the second quarter of fiscal 2020 while, in the second quarter of fiscal 2019, a non-cash credit of $13.4 million was recorded.

Adjusted EBITDA rose by $7.4 million, or 7.5 percent, to $106.9 million. Acquisitions provided $4.9 million of Adjusted EBITDA, while Adjusted EBITDA in the base business increased by $2.5 million, as the impact from lower volumes sold, due to 18.2% warmer weather, and net customer attrition were largely offset by higher per gallon home heating oil and propane margins, $20.0 million lower operating expenses in the base business, a favorable change in the amount due under the Company’s weather hedge of $13.1 million, and an improvement in net service and installation profitability of $3.2 million. The sharp decrease in product cost in the second fiscal quarter of 2020 combined with the Company’s weighted average product costing method also favorably impacted product gross profit by $6.9 million and the Company anticipates that product gross profit will be reduced by a similar amount over future periods as the effects of the price declines are weighted into the average costing calculations.

“As we cross the midpoint of fiscal 2020, the Company is managing through a number of unforeseen challenges related to the current pandemic,” said Jeff Woosnam, Star Group’s President and Chief Executive Officer. “The outbreak of COVID-19 has clearly had an impact on the way we do business – largely from a safety and logistical standpoint – but I’m pleased to report that we still posted solid results for the quarter. Gross margins rose, helped by falling oil prices, operating costs were reduced $20.0 million year-over-year, and net customer attrition declined – testimony to our attention to detail and continued focus on improving the customer experience. Our performance was also impressive given that temperatures were 18.2 percent warmer than last year, and our weather hedge worked as anticipated – resulting in a $10.1 million credit for fiscal 2020. We remain committed to serving our customers and believe Star is well positioned to navigate through unchartered territory in the months to come, for which we greatly thank our dedicated and hardworking employees.”

Six Months Ended March 31, 2020 Compared to the Six Months Ended March 31, 2019
Star reported a 14.8 percent decrease in total revenue to $1.1 billion compared with $1.2 billion in the prior-year period, reflecting the impact of lower volumes sold and reduced selling prices. The decline in selling prices was largely attributable to a decrease in product cost.

The volume of home heating oil and propane sold during the first half of fiscal 2020 decreased by 43.3 million gallons, or 15.1 percent, to 243.3 million gallons, as the positive impact from acquisitions was offset by warmer temperatures, net customer attrition and other factors. Temperatures in Star's geographic areas of operation for the first six months of fiscal 2020 were 11.6 percent warmer than during the prior year comparable period and 13.8 percent warmer than normal, as reported by the National Oceanic and Atmospheric Administration.

Net income increased by $11.5 million, or 15.4 percent, to $86.2 million due to a non-cash favorable change in the fair value of derivative instruments of $12.4 million and an increase in Adjusted EBITDA of $7.7 million, as described below.

Adjusted EBITDA increased by $7.7 million, or 5.3 percent to $152.0 million. Acquisitions provided $8.0 million of Adjusted EBITDA, while Adjusted EBITDA in the base business decreased by $0.3 million as the impact from lower volumes sold (reflecting 11.6% warmer weather and net customer attrition) was largely offset by higher per gallon home heating oil and propane margins, $32.1 million lower operating expenses in the base business, a favorable change in the amount due under the Company’s weather hedge of $12.2 million, and an improvement in the net service and installation profitability of $2.9 million. The sharp decrease in product costs in the second fiscal quarter of 2020 combined with the Company’s weighted average product costing method also favorably impacted product gross profit by $6.9 million and the Company anticipates that product gross profit will be reduced by a similar amount over future periods as the effects of the price declines are weighted into the average costing calculations.

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, multiemployer pension plan withdrawal charge, net other income, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental analytical tools by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess:

  • our compliance with certain financial covenants included in our debt agreements;

  • our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;

  • our operating performance and return on invested capital compared to those of other companies in the retail distribution of refined petroleum products, without regard to financing methods and capital structure;

  • our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; and

  • the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.

The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have limitations as analytical tools and so should not be viewed in isolation but in conjunction with measurements that are computed in accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:

  • EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures;

  • although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;

  • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;

  • EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and

  • EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.

REMINDER:
Members of Star's management team will host a webcast and conference call at 11:00 a.m. Eastern Time tomorrow, May 5, 2020. The webcast will be accessible on the company’s website, at www.stargrouplp.com, and the telephone number for the conference call is 877-327-7688 (or 412-317-5112 for international callers).

About Star Group, L.P.
Star Group, L.P. is a full service energy provider specializing in the sale of home heating oil and propane to residential and commercial customers primarily within the Northeast, Central and Southeast United States. The Company also sells gasoline and diesel fuel as well as installs, maintains, and repairs various heating and air conditioning equipment; to a lesser extent, it provides these ancillary services outside its product customer base, including service contracts for natural gas and other heating systems. Star is the nation's largest retail distributor of home heating oil based upon sales volume. Additional information is available by obtaining the Company's SEC filings at www.sec.gov and by visiting Star's website at www.stargrouplp.com, where unit holders may request a hard copy of Star’s complete audited financial statements free of charge.

Forward Looking Information
This news release includes “forward-looking statements” which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the severity and duration of the novel coronavirus, or COVID-19, pandemic, the pandemic’s impact on the U.S. and global economies, the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic, the effect of weather conditions on our financial performance, the price and supply of the products that we sell, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, natural gas conversions, future union relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including climate change, environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness, marketing plans, potential cyber-attacks, general economic conditions and new technology. All statements other than statements of historical facts included in this news release are forward-looking statements. Without limiting the foregoing, the words "believe," "anticipate," "plan," "expect," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth under the heading "Risk Factors" and "Business Strategy" in our Annual Report on Form 10- K (the "Form 10-K") for the fiscal year ended September 30, 2019. Important factors that could cause actual results to differ materially from the Company’s expectations ("Cautionary Statements") are disclosed in this news release and in the Form 10-Q. Currently, one of the most significant factors, however, is the potential adverse effect of the pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company and its customers and counterparties and the global economy and financial markets. The extent to which COVID-19 impacts us and our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. 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, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this news release.

CONTACT:

Star Group, L.P.

Chris Witty

Investor Relations

Darrow Associates

203/328-7310

646/438-9385 or cwitty@darrowir.com

(financials follow)

STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

March 31,

September 30,

2020

2019

(in thousands)

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

10,301

$

4,899

Receivables, net of allowance of $9,017 and $8,378, respectively

187,091

120,245

Inventories

52,826

64,788

Prepaid expenses and other current assets

43,319

36,898

Total current assets

293,537

226,830

Property and equipment, net

95,204

98,239

Operating lease right-of-use assets

103,672

Goodwill

244,574

244,574

Intangibles, net

98,245

107,688

Restricted cash

250

250

Captive insurance collateral

65,776

58,490

Deferred charges and other assets, net

17,823

16,635

Total assets

$

919,081

$

752,706

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities

Accounts payable

$

23,898

$

33,973

Revolving credit facility borrowings

24,043

24,000

Fair liability value of derivative instruments

14,017

8,262

Current maturities of long-term debt

13,000

9,000

Current portion of operating lease liabilities

19,567

Accrued expenses and other current liabilities

158,989

120,839

Unearned service contract revenue

65,176

61,213

Customer credit balances

36,202

68,270

Total current liabilities

354,892

325,557

Long-term debt

116,188

120,447

Long-term operating lease liabilities

89,373

Deferred tax liabilities, net

20,229

20,116

Other long-term liabilities

22,444

25,746

Partners’ capital

Common unitholders

334,968

279,709

General partner

(1,792

)

(1,968

)

Accumulated other comprehensive loss, net of taxes

(17,221

)

(16,901

)

Total partners’ capital

315,955

260,840

Total liabilities and partners’ capital

$

919,081

$

752,706

STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months
Ended March 31,

Six Months
Ended March 31,

(in thousands, except per unit data - unaudited)

2020

2019

2020

2019

Sales:

Product

$

481,275

$

637,400

$

913,963

$

1,096,107

Installations and services

61,788

62,182

138,045

138,502

Total sales

543,063

699,582

1,052,008

1,234,609

Cost and expenses:

Cost of product

285,350

415,639

573,023

721,865

Cost of installations and services

61,273

65,394

134,942

139,711

(Increase) decrease in the fair value of derivative instruments

11,670

(13,401

)

5,253

17,638

Delivery and branch expenses

85,463

110,684

182,189

213,357

Depreciation and amortization expenses

9,089

7,858

18,139

15,603

General and administrative expenses

5,422

9,849

11,928

17,664

Finance charge income

(1,321

)

(1,443

)

(2,034

)

(2,294

)

Operating income

86,117

105,002

128,568

111,065

Interest expense, net

(2,756

)

(3,194

)

(5,435

)

(5,710

)

Amortization of debt issuance costs

(253

)

(244

)

(488

)

(503

)

Income before income taxes

83,108

101,564

122,645

104,852

Income tax expense

24,700

29,239

36,482

30,212

Net income

$

58,408

$

72,325

$

86,163

$

74,640

General Partner’s interest in net income

409

454

601

469

Limited Partners’ interest in net income

$

57,999

$

71,871

$

85,562

$

74,171

Per unit data (Basic and Diluted):

Net income (loss) available to limited partners

$

1.25

$

1.40

$

1.83

$

1.42

Dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

0.22

0.25

0.31

0.23

Basic and diluted income per Limited Partner Unit:

$

1.03

$

1.15

$

1.52

$

1.19

Weighted average number of Limited Partner units outstanding (Basic and Diluted)

46,244

51,427

46,760

52,174

SUPPLEMENTAL INFORMATION
STAR GROUP, L.P. AND SUBSIDIARIES

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(Unaudited)

Three Months
Ended March 31,

(in thousands)

2020

2019

Net income

$

58,408

$

72,325

Plus:

Income tax expense

24,700

29,239

Amortization of debt issuance costs

253

244

Interest expense, net

2,756

3,194

Depreciation and amortization

9,089

7,858

EBITDA

95,206

112,860

(Increase) / decrease in the fair value of derivative instruments

11,670

(13,401

)

Adjusted EBITDA

106,876

99,459

Add / (subtract)

Income tax expense

(24,700

)

(29,239

)

Interest expense, net

(2,756

)

(3,194

)

Provision for losses on accounts receivable

2,193

3,439

Decrease (increase) in accounts receivables

16,183

(63,506

)

Decrease in inventories

27,435

16,446

Decrease in customer credit balances

(16,564

)

(24,356

)

Change in deferred taxes

(1,114

)

(8,719

)

Change in other operating assets and liabilities

(5,087

)

30,200

Net cash provided by operating activities

$

102,466

$

20,530

Net cash used in investing activities

$

(5,534

)

$

(19,198

)

Net cash used in financing activities

$

(101,173

)

$

(8,749

)

Home heating oil and propane gallons sold

136,200

173,300

Motor fuel and other petroleum products

36,600

39,000

Total all products

172,800

212,300

SUPPLEMENTAL INFORMATION
STAR GROUP, L.P. AND SUBSIDIARIES

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(Unaudited)

Six Months
Ended March 31,

(in thousands)

2020

2019

Net income

$

86,163

$

74,640

Plus:

Income tax expense

36,482

30,212

Amortization of debt issuance costs

488

503

Interest expense, net

5,435

5,710

Depreciation and amortization

18,139

15,603

EBITDA

146,707

126,668

(Increase) / decrease in the fair value of derivative instruments

5,253

17,638

Adjusted EBITDA

151,960

144,306

Add / (subtract)

Income tax expense

(36,482

)

(30,212

)

Interest expense, net

(5,435

)

(5,710

)

Provision for losses on accounts receivable

3,203

4,968

Increase in accounts receivables

(69,562

)

(159,249

)

Decrease (increase) in inventories

12,008

(3,741

)

Decrease in customer credit balances

(32,462

)

(38,476

)

Change in deferred taxes

222

(9,335

)

Change in other operating assets and liabilities

27,423

55,088

Net cash provided by (used in) operating activities

$

50,875

$

(42,361

)

Net cash used in investing activities

$

(13,197

)

$

(27,310

)

Net cash (used in) provided by financing activities

$

(32,276

)

$

71,512

Home heating oil and propane gallons sold

243,300

286,600

Motor fuel and other petroleum products

78,000

80,900

Total all products

321,300

367,500