Q2 2024 Star Group LP Earnings Call

Participants

Chris Witty; Investor Relations; Star Group LP

Jeffrey Woosnam; President, Chief Executive Officer, Director of Kestrel Heat, LLC; Star Group LP

Richard Ambury; Chief Financial Officer, Executive Vice President, Treasurer, Secretary of Kestrel Heat, LLC; Star Group LP

Tim Mullen; Analyst; Laurelton Management Ltd.

Michael Prouting; Analyst; 10K Capital LLC

Presentation

Operator

Good morning and welcome to The Stars Group Fiscal 2024 second quarter results conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the call over to Chris Witty, Investor Relations Adviser. Please go ahead.

Chris Witty

Thank you and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer, and Rich Ambury, Chief Financial Officer. I would now like to provide a brief Safe Harbor statement. 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 the Company's 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 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 have been correct and important factors that could cause actual results to differ materially from the Company's expectations are disclosed in this conference call, the Company's annual report on Form 10 K for the fiscal year ended September 30th, 2023, and the Company's other filings with the SEC.
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 and unless otherwise required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, 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 over to Jeff Woosnam. Jeff?

Jeffrey Woosnam

Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our second quarter and fiscal year to date results. Temperatures in the second quarter were 15.2% warmer than normal throughout stores footprint while slightly colder than the same period last year. It was unfortunately not enough to drive higher delivery volumes. However, we were able to move the impact of on adjusted EBITDA even with a lower weather hedge benefit and some ongoing inflationary pressures by improving per-gallon margins and employing solid expense control. We also kept net customer attrition at modest levels during the quarter and as previously noted, closed on two strategic acquisitions in February on Long Island, giving us a total of four transactions thus far in the current fiscal year, our team has remained very busy evaluating various heating oil and propane opportunities that align with our goal of strengthening and broadening our portfolio of brands through the first six months of fiscal 2024 temperatures.
Temperatures were 0.2% warmer than the same period last year and 14.7% warmer than normal. While there is nothing we can do to control the weather. We believe our team is quite adept at adjusting to it and making the most of the conditions. One area of note is the year over year improvement we've made in service and equipment installation profitability, which has been an area of focus for us. I'm quite pleased with our progress, which I believe is evidence of the quality of service that we provide and certainly a direct result of the hard work and dedication of our employees with the heating season now behind us, we believe we are well-positioned for the remainder of fiscal 2024, as well as the opportunities that summer brings to further invest in our people and business development activities.
With that, I'll turn the call over to Rich to provide additional comments on the quarter's results.

Operator

Rich?

Richard Ambury

Thanks, Jeff, and good morning, everyone. For the second quarter, our home heating oil and propane volume decreased by 4 million gallons or roughly 3% to 117 million gallons as the additional volume provided from acquisitions and colder weather was more than offset by net customer attrition and other factors temperatures for the fiscal 2020 for second quarter were 7% colder than last year, but still 15% warmer than normal.
Our product gross profit increased by $3 million or 1.5% to $206 million as an increase in per gallon margins was reduced by the 3% decline in home heating oil and propane volumes sold delivery and branch expenses increased by $8 million year over year, of which $6.4 million was attributable to our weather hedging program in the second quarter of fiscal 2024, we recorded a benefit of $6.5 million under our weather hedge compared to a benefit of $12.5 million recorded in the comparable period last year. Recent acquisitions accounted for an increase of $1.8 million.
In operating expenses. We posted net income of $68 million in the second quarter of fiscal 2024 or $6 million more than the prior year period, reflecting the after-tax impact of a noncash, favorable change in the fair value of derivative instruments of $15 million and a $6 million decrease in adjusted EBITDA. Adjusted EBITDA declined by $6 million to $96 million as an increase in home heating oil and propane per gallon margins was more than offset by the $4 million decrease excuse me, $4 million gallon decrease in home heating oil and propane volume sold and a $6.4 million decline in our weather hedge.
Turning to the results for the first half of fiscal 2024, our home heating oil and propane volume declined by 13 million gallons or 6% to $197 million gallons, again, as the additional volume provided from acquisitions was reduced by slightly warmer temperatures, net customer attrition and other factors temperatures for the first half of fiscal 2024 were just two tenths of a percent warmer than last year and 15% warmer than normal.
Our product gross profit decreased by $3 million or 1% to $351 million as the impact of higher home heating oil and propane per gallon margins was largely offset by lower motor fuel gross profit and a 6% decline in home heating oil and propane volumes. Delivery, branch and G&A expenses rose by $4.8 million year over year, of which $5 million was attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7.5 million under our weather hedge compared to a $12.5 million benefit recorded in the first half of fiscal 2023.
We had net income of $81 million for the first six months of fiscal 2024 or $6 million higher than the prior year period, largely due to the after-tax impact of a noncash favorable change in the fair value of derivative instruments of $13 million, partially offset by a decrease in adjusted EBITDA of $6 million. Adjusted EBITDA declined by $6 million to $145 million as an increase in home heating oil and propane per gallon margins was more than offset by a $13 million or $13 million gallon decrease in home heating oil and propane volume sold and a 5 million decline in the weather hedge benefit year over year.
The decrease in adjusted EBITDA of $6 million was muted by a $2 million favorable change in net interest expense. As a result, our after-tax cash flow declined by approximately $2.7 million. And we'd like everyone to note that for fiscal 2025, we have put in $15 million of weather hedges. If we had the same amount of coverage in place during 2024. At the same temperatures, we would have been paid an additional $7.5 million more in fiscal 2024 for a total of $15 million under the weather hedges.
And with that, I'll turn the conference call back to Jeff.

Jeffrey Woosnam

Thanks, Rich. But this time, we're pleased to address any questions. You may have. Anthony, please open the phone lines for questions.

Question and Answer Session

Operator

We will now begin the question and answer session to us to ask a question, press star one on your telephone keypad. If using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question will come from Tim Mullen with Laurelton Management. You may now go ahead.

Tim Mullen

Hey, guys. Thanks for taking my questions. First, just given the larger size of the acquisitions that you've completed more recently. I just wonder if you could provide any color on those businesses in terms of their strategic objective. I mean, obviously from a geographical standpoint, it seems like natural fits for you all. But just wondering if you could provide any color on the types of customers, product fit and any financial information regarding the acquisitions?

Jeffrey Woosnam

Sure. So we closed on two acquisitions in November on both of those were heating oil acquisitions on smaller opportunities that were that are tuck-ins to our existing New Jersey operations and then we closed on on two businesses. And in February and early February one was a propane business and the other one, a our heating oil businesses, as I mentioned, both look located in Long Island.

Tim Mullen

And I know you don't like to give any financial information, but is there any color you can provide on multiples or kind of annual on those lines?

Jeffrey Woosnam

No, not at this time.

Tim Mullen

Okay. And then just when you think about the business more kind of on a medium and longer-term basis, how do you think about the possibility of homes transitioning away from using home unique home heating oil as their energy source? And does that impact M&A strategy or how you think about organic growth?

Jeffrey Woosnam

Yes, I guess so what I'd say is I don't want to necessarily comment on specific state or federal legislation and how that might impact our business. Long term. We as a business and as an industry feel like come. We've made a very strong commitment to the BOP, which is a blend of renewable biodiesel and ultralow sulfur heating oil and have increased our sales of that product and have committed to continue to do that. And we can we all have, I guess, our views on the whole energy transition and how quickly it's going to occur. But Tom, we feel like we're properly positioned to deal with those changes.

Tim Mullen

Okay, great.

Operator

Thanks for taking my call questions again, if you have a question, please press star then one. Our next question will come from Michael Prouting with 10K Capital. You may now go.

Michael Prouting

Yes, morning, guys. Some room. I had a question related actually to the prior questions on acquisitions. It seems like the pace of acquisitions has picked up recently. Jeff, I'm just wondering if that's a reflection of sellers being or rather earnest being more willing to sell? And then I guess related to that, even though you might not want to comment on the valuations of the acquisitions you've closed. I'm just wondering what you're seeing in the market as far as multiples are concerned? And I guess also related to the prior question, if the multiples are reflecting the warmer weather environment as well as some transition risks. Thanks.

Jeffrey Woosnam

Sure, Michael. Yes, so our team has been very busy. As I mentioned, we've closed on four transactions already this year that we feel are high quality. What I'd say is it kind of it kind of kind of goes ebbs and flows, the activity levels on and the businesses that are on the market.
What I would note is that there is what we've been evaluating more recently over the last six months have been and some what we would consider some some very high-quality businesses that seem to be very good, very good fit for us, and it's hard to predict what is actually going to come to fruition from that. We have to go through our process. We're going to remain very disciplined in that regard, and we'll just have to see how that plays out. I have not seen multiples and depressed in any way as a result of weather. And we typically when we're evaluating a business will both kind of normalize the results as it has been when we value the business.

Michael Prouting

Okay, thanks.

Operator

Again, if you have a question, please for star then one at this point, there appears to be no further questions in the queue. So I'll turn it back to Mr. Wilson for any closing remarks.

Jeffrey Woosnam

Well, thank you for taking the time to join us today and for your ongoing interest in Star Group. We look forward to sharing our 2024 fiscal third quarter results in August. Thank you, everyone.

Operator

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