Star Group, L.P. Reports Fiscal 2017 Fourth Quarter and Full Year Results

December 6, 2017 4:15 PM

STAMFORD, Conn., Dec. 06, 2017 (GLOBE NEWSWIRE) -- Star Group, L.P. (the "Company" or "Star") (NYSE: SGU), a home energy distributor and services provider, today filed its fiscal 2017 annual report on Form 10-K with the SEC and announced financial results for the fiscal 2017 fourth quarter and year ended September 30, 2017.

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

For the fiscal 2017 fourth quarter, Star reported a 12.0 percent increase in total revenue to $181.6 million, compared with $162.1 million in the prior-year period. The revenue growth reflects higher selling prices – in response to an increase in wholesale product costs of 24.4 cents per gallon – greater service and installation sales, and an increase in home heating oil and propane volume sold. Home heating oil and propane volume sold rose by 2.0 million gallons, or 9.7 percent, to 22.6 million gallons largely due to the additional sales volume provided from acquisitions. Home heating oil and propane margins declined by approximately 4.3 cents per gallon in the base business (excluding acquisitions) compared to the fourth quarter of fiscal 2016 largely due to lower per gallon margins on sales to price-protected customers which were impacted, in part, by the increase in wholesale product costs.

During the fiscal 2017 fourth quarter, Star's net loss decreased by $1.3 million to a loss of $17.7 million, as the favorable impact of a non-cash change in the fair value of derivative instruments of $11.1 million more than offset $7.8 million of higher delivery and branch expense, including an increase in insurance costs of $2.9 million compared to the prior year period.

The Company's Adjusted EBITDA loss for the fiscal 2017 fourth quarter increased by $8.0 million, to a loss of $29.2 million, primarily due to higher operating expenses in the base business of $6.1 million, an Adjusted EBITDA loss of $0.7 million attributable to acquisitions, and the impact from lower per gallon margins of $1.0 million. Operating expenses in the base business rose due to higher insurance costs of $2.7 million and an increase in spending attributable to additional staffing in the areas of information technology, customer service, operations management, and sales and marketing. Legal and professional fees were also $0.7 million higher in the fourth quarter of 2017 versus the prior-year period, primarily related to expenses associated with the Company’s election to be treated as a corporation, instead of a partnership, for federal income tax purposes (commonly referred to as a “check-the-box” election) and amendments to the Company’s partnership agreement to give effect to such change in income tax classification, including expenses associated with holding a special unitholder meeting to seek unitholder approval of the check-the-box election and corresponding amendments to the Company’s partnership agreement. Adjusted EBITDA is a non-GAAP financial measure (see reconciliation below) that should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) but provides additional information for evaluating the Company’s ability to pay distributions.

Fiscal Year Ended September 30, 2017 Compared to Fiscal Year Ended September 30, 2016

Star reported a 14.0 percent increase in total revenue to $1.3 billion, versus $1.2 billion in the prior-year period, due to higher selling prices – in response to higher wholesale product costs of 26.4 cents per gallon – an increase in total volume sold of 4.1 percent, and higher air conditioning installation and service sales.

Home heating oil and propane volume sold increased by 14.4 million gallons, or 4.8 percent, to 316.9 million gallons, as the additional sales volume provided from acquisitions and colder weather was only partially offset by net customer attrition and other factors. Temperatures in Star's geographic areas of operation for fiscal 2017 were 7.0 percent colder than last year’s comparable period but 12.4 percent warmer than normal as reported by the National Oceanic and Atmospheric Administration.

Net income decreased by $18.0 million, or 40.1 percent, to $26.9 million as the positive impact from colder temperatures and acquisitions was more than offset by an unfavorable, non-cash change in the fair value of derivative instruments of $16.0 million, the absence of a $12.5 million credit as was recorded in fiscal 2016 under the Company’s weather hedge contract, and an increase in spending largely due to additional staffing in the areas of information technology, customer service, operations management, and sales and marketing and other expense increases.

Adjusted EBITDA decreased by $14.7 million, or 15.4 percent, to $81.0 million as the impact of higher home heating oil and propane volume sold and slightly better home heating oil and propane per gallon margins were more than offset by the absence of a $12.5 million credit as was recorded in fiscal 2016 under the Company’s weather hedge contract, lower service and installations gross profit, and additional costs related to staffing in the areas of information technology, customer service, operations management, and sales and marketing and other expense increases.

"We accomplished a good deal this fiscal year, and not just operationally," said Steven J. Goldman, Star Group’s Chief Executive Officer. "Total heating oil and propane volume sold rose to 317 million gallons, boosted by slightly colder weather, while we invested in critical areas such as information technology, service, and sales to help increase client retention as well as support our organic growth initiatives. Net customer attrition improved to 1.5 percent from 5.1 percent in fiscal 2016 – reflecting both higher gains as well as lower losses. I’m really proud of this track record as we head into the busy winter season.

"In addition, we recently announced that our unitholders approved the Company’s check-the-box election at a special unitholder meeting held on October 25, 2017. This new income tax classification will allow the Company to save on administrative expense going forward while potentially broadening its base of interested institutional investors. We also changed our name to Star Group, L.P. to better reflect the full scope of products and services we offer. Overall, we believe these developments position us well for the future – one in which Star provides a growing complement of home comfort solutions to its customers across the U.S."

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, 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:

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:

REMINDER: Star’s management will host a conference call and webcast tomorrow, December 7, 2017, at 11:00 a.m. Eastern Time. The conference call dial-in number is 1-877-327-7688 or 1-412-317-5112 (for international callers). A webcast is also available at http://www.stargrouplp.com/events-and-presentations.

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 home security and plumbing services primarily to its home heating oil and propane customer base. Star also sells diesel fuel, 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.

Forward Looking InformationThis 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, 2017. 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-K. 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
September 30, September 30,
(in thousands) 2017 2016
ASSETS
Current assets
Cash and cash equivalents $52,458 $139,188
Receivables, net of allowance of $5,540 and $4,419, respectively 96,603 78,650
Inventories 59,596 45,894
Fair asset value of derivative instruments 5,932 3,987
Prepaid expenses and other current assets 26,652 27,139
Total current assets 241,241 294,858
Property and equipment, net 79,673 70,410
Goodwill 225,915 212,760
Intangibles, net 105,218 97,656
Deferred tax assets, net - 5,353
Restricted cash 250 -
Investments 11,777 -
Deferred charges and other assets, net 9,843 11,074
Total assets $673,917 $692,111
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable $26,739 $25,690
Fair liability value of derivative instruments 289 2,285
Current maturities of long-term debt 10,000 16,200
Accrued expenses and other current liabilities 108,449 103,855
Unearned service contract revenue 60,133 56,971
Customer credit balances 66,723 84,921
Total current liabilities 272,333 289,922
Long-term debt 65,717 75,441
Deferred tax liabilities, net 6,140 -
Other long-term liabilities 23,659 25,255
Partners’ capital
Common unitholders 325,762 322,771
General partner (929) (516)
Accumulated other comprehensive loss, net of taxes (18,765) (20,762)
Total partners’ capital 306,068 301,493
Total liabilities and partners’ capital $673,917 $692,111

STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Twelve Months Ended
September 30, September 30,
(in thousands, except per unit data) 2017 2016 2017 2016
(unaudited) (unaudited)
Sales:
Product $114,769 $97,495 $1,065,076 $911,014
Installations and services 66,815 64,569 258,479 250,324
Total sales 181,584 162,064 1,323,555 1,161,338
Cost and expenses:
Cost of product 82,584 66,297 675,386 539,831
Cost of installations and services 56,533 53,968 239,670 229,010
(Increase) decrease in the fair value of derivative instruments (9,219) 1,854 (2,193) (18,217)
Delivery and branch expenses 65,547 57,738 306,534 276,493
Depreciation and amortization expenses 7,177 6,571 27,882 26,530
General and administrative expenses 6,854 5,841 24,998 23,366
Finance charge income (766) (599) (4,054) (3,079)
Operating income (loss) (27,126) (29,606) 55,332 87,404
Interest expense, net (1,657) (2,004) (6,775) (7,485)
Amortization of debt issuance costs (309) (313) (1,281) (1,247)
Income (loss) before income taxes (29,092) (31,923) 47,276 78,672
Income tax expense (benefit) (11,345) (12,828) 20,376 33,738
Net income (loss) $(17,747) $(19,095) $26,900 $44,934
General Partner’s interest in net income (loss) (103) (110) 156 252
Limited Partners’ interest in net income (loss) $(17,644) $(18,985) $26,744 $44,682
Per unit data (Basic and Diluted):
Net income (loss) available to limited partners $(0.32) $(0.34) $0.48 $0.78
Dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 - - 0.02 0.08
Limited Partner’s interest in net income (loss) under FASB ASC 260-10-45-60 $(0.32) $(0.34) $0.46 $0.70
Weighted average number of Limited Partner units outstanding (Basic and Diluted) 55,888 56,382 55,888 57,022

SUPPLEMENTAL INFORMATION
STAR GROUP, L.P. AND SUBSIDIARIESRECONCILIATION OF EBITDA AND ADJUSTED EBITDA(Unaudited)
Three Months Ended September 30,
(in thousands) 2017 2016
Net loss $ (17,747) $ (19,095)
Plus:
Income tax benefit (11,345) (12,828)
Amortization of debt issuance cost 309 313
Interest expense, net 1,657 2,004
Depreciation and amortization 7,177 6,571
EBITDA (19,949) (23,035)
(Increase) / decrease in the fair value of derivative instruments (9,219) 1,854
Adjusted EBITDA (29,168) (21,181)
Add / (subtract)
Income tax benefit 11,345 12,828
Interest expense, net (1,657) (2,004)
Recovery of losses on accounts receivable (622) (499)
Decrease in accounts receivables 20,680 10,318
Increase in inventories (14,359) (3,423)
Increase in customer credit balances 22,672 8,516
Change in deferred taxes 5,683 (3,629)
Change in other operating assets and liabilities (16,726) (9,154)
Net cash used in operating activities $ (2,152) $ (8,228)
Net cash used in investing activities $ (31,162) $ (3,875)
Net cash used in financing activities $ (8,802) $ (19,865)
Home heating oil and propane gallons sold 22,600 20,600
Other petroleum products 28,700 27,900
Total all products 51,300 48,500

SUPPLEMENTAL INFORMATIONSTAR GROUP, L.P. AND SUBSIDIARIESRECONCILIATION OF EBITDA AND ADJUSTED EBITDA(Unaudited)
Twelve Months Ended September 30,
(in thousands) 2017 2016
Net income $26,900 $44,934
Plus:
Income tax expense 20,376 33,738
Amortization of debt issuance cost 1,281 1,247
Interest expense, net 6,775 7,485
Depreciation and amortization 27,882 26,530
EBITDA 83,214 113,934
(Increase) / decrease in the fair value of derivative instruments (2,193) (18,217)
Adjusted EBITDA 81,021 95,717
Add / (subtract)
Income tax expense (20,376) (33,738)
Interest expense, net (6,775) (7,485)
Provision (recovery) for losses on accounts receivable 1,639 (639)
(Increase) decrease in accounts receivables (19,844) 10,965
(Increase) decrease in inventories (10,598) 9,979
(Decrease) increase in customer credit balances (23,085) 6,490
Change in deferred taxes 10,134 9,670
Change in other operating assets and liabilities 8,942 10,998
Net cash provided by operating activities $21,058 $101,957
Net cash used in investing activities $(66,381) $(19,631)
Net cash used in financing activities $(41,157) $(43,646)
Home heating oil and propane gallons sold 316,900 302,500
Other petroleum products 112,100 109,500
Total all products 429,000 412,000

CONTACT:Star GroupInvestor Relations203/328-7310

Chris Witty Darrow Associates 646/438-9385 or cwitty@darrowir.com

Source: Star Group, L.P.

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