Commodities: Star Group 4Q Loss $17.7M >SGU

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

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

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:

   -- 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: 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.

Press Release: Star Group, L.P. Reports Fiscal -2-

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 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, 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 SUBSIDIARIES 
  RECONCILIATION 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 
 

Press Release: Star Group, L.P. Reports Fiscal -3-

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 INFORMATION 
 STAR GROUP, L.P. AND SUBSIDIARIES 
 RECONCILIATION 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 Group

Investor Relations

203/328-7310

Chris Witty

Darrow Associates

646/438-9385 or [email protected]