Star Gas: Star Group, L.P. Reports Fiscal 2019 Second Quarter Results

The following excerpt is from the company's SEC filing.

STAMFORD, Conn., May 01, 2019 (GLOBE NEWSWIRE) -- Star Group, L.P. (the "Company" or "Star") (NYSE:SGU), a home energy distributor and services provider, today announced financial results for the fiscal 2019 second quarter and six months ended March 31, 2019.

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

For the fiscal 2019 second quarter, Star reported a 2.3 percent increase in total revenue to $699.6 million compared with revenue of $684.0 million in the prior-year period, primarily due to higher wholesale per-gallon product costs.

The volume of home h eating oil and propane sold during the fiscal 2019 second quarter decreased by 6.8 million gallons, or 3.8 percent, to 173.3 million gallons, as the impact of colder temperatures and acquisitions was more than offset by net customer attrition, a year-over-year delivery scheduling variance, and other factors. Temperatures in Star's geographic areas of operation for the fiscal 2019 second quarter were 2.9 percent colder than during the fiscal 2018 second quarter but 2.6 percent warmer than normal, as reported by the National Oceanic and Atmospheric Administration. The aforementioned delivery scheduling variance year-over-year reflects the fact that the volume of home heating oil and propane delivered in the second quarter of fiscal 2018 was positively impacted by the extremely cold weather experienced near the end of that year’s fiscal first quarter (ended December 31, 2017). Volume of other petroleum products sold in the second quarter of fiscal 2019 increased by 8.9 million gallons, or 29.6 percent, to 39.0 million, largely due to acquisitions.

Net income increased by $17.5 million, or 32.0 percent, to $72.3 million in the fiscal 2019 second quarter as a non-cash favorable change in the fair value of derivative instruments of $25.0 million more than offset a decline in Adjusted EBITDA of $5.3 million, described below. Regarding the favorable change in the fair value of derivative instruments, during the second quarter of fiscal 2019 a non-cash gain of $13.4 million was recorded while, in the second quarter of fiscal 2018, a non-cash charge of $11.6 million was recorded. The Company also benefited from a decline in its effective income tax rate to 28.8 percent for the second quarter of fiscal 2019 from 33.8 percent during the second quarter of fiscal 2018.

Adjusted EBITDA decreased by $5.3 million, or 5.1%, to $99.5 million in the fiscal 2019 second quarter as the additional Adjusted EBITDA provided by acquisitions of $3.4 million was more than offset by an $8.7 million decline in Adjusted EBITDA within the base business. The impact of colder temperatures and higher home heating oil and propane margins in the base business more than offset greater total operating expenses and the impact of the previously-described delivery scheduling volume variance, improving year-over-year Adjusted EBITDA by $0.7 million prior to the following exceptional items: i) $3.8 million due to implementation of a new revenue recognition accounting standard (the majority of which is expected to be reversed by the end of fiscal 2019); ii) $2.1 million of higher legal and professional expenses; iii) a charge of $1.5 million related to the discontinued use of a tank monitoring system; iv) a $0.6 million net Adjusted EBITDA loss associated with the Company’s concierge program, which was greatly curtailed this past January; and v) $1.3 million of expense tied to an increase in the amount due under Star’s weather hedge contracts.

“With a new management team now in place, I am pleased to reaffirm our commitment to being the most reputable firm in the home energy services space and providing long-term returns to our shareholders,” said Jeffrey M. Woosnam, Star Group’s President and Chief Executive Officer. “Rich Ambury, Jeff Hammond, Joe McDonald and I – along with our talented team here at Star – are ready to take the Company to the next level in terms of growth, quality service, and market presence. That said, the second quarter was negatively impacted by greater-than-expected net customer attrition due to our decision not to renew certain low-margin accounts, credit issues and, lastly, the price of home heating oil and propane. We are dedicated to limiting the loss of customers as much as possible.

“In the coming months, we will be evaluating all of Star’s operations to determine our best path forward and align the organization with core strategic objectives. While accomplishing a great deal over the past decade, we need to focus on improved business execution so that we remain the premier energy services provider we are today – strengthening customer satisfaction, reducing attrition, streamlining our operations where appropriate, and utilizing technology to effectively compete. We believe these actions will position Star to continue as a major force in the industry for years to come.”

Six Months Ended March 31, 2019 Compared to the Six Months Ended March 31, 2018

Star reported a 10.1 percent increase in total revenue to $1.2 billion compared with revenue of $1.1 billion in the prior-year period, reflecting higher wholesale per-gallon product costs and an increase in total volume sold.

The volume of home heating oil and propane sold during the first half of fiscal 2019 increased by 3.1 million gallons, or 1.1 percent, to 286.6 million gallons, as the impact of colder temperatures and acquisitions was largely offset by net customer attrition and other factors. Temperatures in Star's geographic areas of operation for the first six months of fiscal 2019 were 4.0 percent colder than during the prior year comparable period but 1.8 percent warmer than normal, as reported by the National Oceanic and Atmospheric Administration. Volume of other petroleum products sold increased by 20.2 million gallons, or 33.3 percent, to 80.9 million gallons, largely due to acquisitions.

Net income decreased by $10.3 million, or 12.1 percent, to $74.6 million as a non-cash unfavorable change in the fair value of derivative instruments of $17.4 million and a higher effective income tax rate was partially offset by an increase in Adjusted EBITDA of $12.1 million, described below. Regarding the unfavorable change in the fair value of derivative instruments, during the first half of fiscal 2019 a non-cash charge of $17.6 million was recorded versus a non-cash charge of $0.2 million during the first half of fiscal 2018. The Company also recorded a $3.7 million income tax benefit during the six months ended March 31, 2018 to reflect the impact of the Tax Cuts and Jobs Act, which lowered its effective income tax rate during that period to 23.8 percent. The effective income tax rate for the first half of fiscal 2019, in contrast, was 28.8 percent.

Adjusted EBITDA for the six months increased by $12.1 million, or 9.2 percent, to $144.3 million year-over-year. Acquisitions provided $5.1 million of the increase in Adjusted EBITDA while, in the base business, Adjusted EBITDA rose by $7.0 million. The impact of colder temperatures and higher home heating oil and propane margins in the base business more than offset greater total operating expenses, improving year-over-year Adjusted EBITDA by $17.5 million prior to the following exceptional items: i) $3.2 million due to the implementation of a new revenue recognition accounting standard (the majority of which is expected to be reversed by the end of fiscal 2019); ii) $2.6 million of higher legal and professional expenses; iii) a charge of $1.5 million related to the discontinued use of a tank monitoring system; iv) a $3.0 million net Adjusted EBITDA loss associated with the Company’s concierge program, which was greatly curtailed this past January; and v) $0.2 million of expense tied to an increase in the amount due under Star’s weather hedge contracts.

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 financial measures 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 on May 2, 2019. 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 provider specializing in the sale of home heating products and services to residential and commercial customers to heat their homes and buildings. The Company also sells and services heating and air conditioning equipment to its home heating oil and propane customers and, to a lesser extent, provides these offerings to customers outside of its home heating oil and propane customer base. In certain of Star's marketing areas, the Company provides plumbing services, primarily to its home heating oil and propane customer base. Star also sells diesel, gasoline and home heating oil on a delivery only basis. Star is the nation's largest retail distributor of home heating oil based upon sales volume. Including its propane locations, Star serves customers in the more northern and eastern states within the Northeast, Central and Southeast U.S. regions. 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 the Company’s expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance; the price and supply of the products 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 future governmental regulations, including environmental, health and safety regulations; the ability to attract and retain employees; customer creditworthiness; counterparty creditworthiness; marketing plans; 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, 2018. 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. 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.

(financials follow)

STAR GROUP, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31,

September 30,

(in thousands)

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

  16,372

  14,531

Receivables, net of allowance of $9,804 and $8,002, respectively

  286,997

  132,668

Inventories

  60,119

  56,377

Fair asset value of derivative instruments

  17,710

Prepaid expenses and other current assets

  32,288

  35,451

Total current assets

  395,776

  256,737

Property and equipment, net

  89,346

  87,618

Goodwill

  239,294

  228,436

Intangibles, net

  89,489

  98,444

Restricted cash

Captive insurance collateral

  54,148

  45,419

Deferred charges and other assets, net

  18,539

  13,067

Total assets

  886,842

  729,971

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities

Accounts payable

  33,459

  35,796

Revolving credit facility borrowings 

  115,000

  1,500

Fair liability value of derivative instruments

  1,518

Current maturities of long-term debt

  10,000

  7,500

Accrued expenses and other current liabilities

  157,524

  116,436

Unearned service contract revenue

  63,718

  60,700

Customer credit balances

  22,781

  61,256

Total current liabilities

  404,000

  283,188

Long-term debt

  86,857

  91,780

Deferred tax liabilities, net

  15,872

  21,206

Other long-term liabilities

  24,692

  24,012

Partners’ capital

Common unitholders

  373,748

  329,129

General partner

  (1,146

  (1,303

Accumulated other comprehensive loss, net of taxes

  (17,181

  (18,041

Total partners’ capital

  355,421

  309,785

Total liabilities and partners’ capital

CONSOLIDATED STATEMENTS OF OPERATIONS

Ended March 31,

(in thousands, except per unit data - unaudited)

Sales:

Product

  637,400

  622,962

  1,096,107

  989,696

Installations and services

  62,182

  61,069

  138,502

  131,169

Total sales

  699,582

  684,031

  1,234,609

  1,120,865

Cost and expenses:

Cost of product

  415,639

  403,293

  721,865

  646,073

Cost of installations and services

  65,394

  64,659

  139,711

  134,214

(Increase) decrease in the fair value of derivative instruments

  (13,401

  11,609

  17,638

Delivery and branch expenses

  110,684

  106,605

  213,357

  197,809

Depreciation and amortization expenses

  7,858

  7,703

  15,603

  15,444

General and administrative expenses

  9,849

  6,221

  17,664

  12,872

Finance charge income

  (1,443

  (1,532

  (2,294

  (2,295

Operating income

  105,002

  85,473

  111,065

  116,539

Interest expense, net

  (3,194

  (2,383

  (5,710

  (4,470

Amortization of debt issuance costs

  (244

  (307

  (503

  (616

Income before income taxes

  101,564

  82,783

  104,852

  111,453

Income tax expense

  29,239

  28,005

  30,212

  26,493

  72,325

  54,778

  74,640

  84,960

General Partner’s interest in net income

Limited Partners’ interest in net income

  71,871

  54,459

  74,171

  84,466

Basic and diluted income per Limited Partner Unit:

  1.15

  0.81

  1.19

  1.26

Weighted average number of Limited Partner units outstanding:

Basic and Diluted

  51,427

  55,642

  52,174

  55,766

SUPPLEMENTAL INFORMATION

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

(Unaudited)

  3,194

  2,383

  112,860

  93,176

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

  99,459

  104,785

Add / (subtract)

  (29,239

  (28,005

Provision for losses on accounts receivable

  3,439

  3,154

Increase in accounts receivables

  (63,506

  (74,337

Decrease in inventories

  16,446

  11,778

Decrease in customer credit balances

  (24,356

  (27,890

Change in deferred taxes

  (8,719

  29,994

Change in other operating assets and liabilities

  30,200

  (14,135

Net cash provided by operating activities

  20,530

  2,961

Net cash used in investing activities

  (19,198

  (3,326

Net cash (used in) provided by financing activities

  (8,749

  14,655

Home heating oil and propane gallons sold

  173,300

  180,100

Other petroleum products

  39,000

  30,100

  Total all products

  212,300

  210,200

  5,710

  4,470

  126,668

  131,983

  144,306

  132,192

  (30,212

  (26,493

  4,968

  3,465

  (159,249

  (170,530

Increase in inventories

  (3,741

  (108

  (38,476

  (42,184

  (9,335

  27,254

  55,088

  20,599

Net cash used in operating activities

  (42,361

  (60,275

  (27,310

  (41,217

Net cash provided by financing activities

  71,512

  84,463

  286,600

  283,500

  80,900

  367,500

  344,200

CONTACT:

Investor Relations 

203/328-7310 

Chris Witty 

Darrow Associates

646/438-9385 or cwitty@darrowir.com 

Source: Star Group, L.P.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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