SEC Filing Summary: STAR GROUP, L.P. (SGU)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024 (Fiscal Q3 2024) and the nine months ended June 30, 2024. Star Group, L.P. is the nation's largest retail distributor of home heating oil, serving approximately 397,400 full-service residential and commercial customers in the Northeast and Mid-Atlantic U.S. The company operates as a limited partnership taxed as a corporation.
Key Financial Metrics
| Metric (in thousands, except per unit) | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 |
|---|---|---|---|
| Total Sales | $331,640 | $1,525,768 | $1,685,925 |
| Net Income (Loss) | $(11,044) | $70,309 | $51,674 |
| Net Income to Limited Partners | $(10,943) | $69,672 | $51,206 |
| Diluted EPS (Limited Partners) | $(0.31) | $1.66 | $1.23 |
| Operating Cash Flow | N/A | $72,367 | $102,715 |
| Adjusted EBITDA | $(4,064) | $141,300 | $128,303 |
| Cash and Equivalents | $45,701 | $45,701 | $45,191 |
| Total Debt (Carrying Amount) | $136,013 | $136,013 | $148,067 |
| Debt Availability | $201.0 million | $201.0 million | $202.1 million |
Material Changes vs. Prior Period
- Revenue: Total sales for the nine months decreased 9.5% to $1.53 billion, driven by a 14.1% decrease in wholesale product costs and a 4.3% decrease in total volume sold. However, product gross profit increased 4.3% to $425.8 million due to improved per-gallon margins.
- Profitability: Net income for the nine months increased 36% to $70.3 million compared to $51.7 million in the prior year. This was driven by a $13.0 million increase in Adjusted EBITDA and a favorable $11.4 million change in the fair value of derivative instruments.
- Quarterly Volatility: The company reported a net loss of $11.0 million for the quarter ended June 30, 2024, compared to a loss of $23.9 million in the same period last year. The loss was primarily due to seasonal factors and a $1.0 million charge related to the fair value of derivative instruments.
- Volume: Home heating oil and propane volume decreased 2.3% year-over-year for the nine-month period, while motor fuel volume decreased 8.9%.
Guidance, Outlook, and Risks
- Outlook: Management notes that results for the nine-month period are not necessarily indicative of full-year results due to seasonality. The company expects to realize net income in the quarters ending December and March, and net losses in the quarters ending June and September.
- Acquisitions: The company acquired four businesses (one propane, three heating oil) for approximately $22.6 million during the nine months ended June 30, 2024. In July 2024, it entered an agreement to purchase a heating oil business for approximately $35 million, expected to close in Q4.
- Capital Allocation: The company repurchased approximately 0.8 million Common Units for $9.0 million during the nine-month period. A quarterly distribution of $0.1725 per unit was declared for Q3 2024.
- Risks: Key risks include volatility in wholesale liquid product prices, weather conditions impacting demand, customer attrition (net loss of 12,100 accounts or 3.1% of the base in the nine months), and the impact of natural gas/electricity conversions. The company utilizes weather hedges and commodity derivatives to mitigate these risks, which introduces mark-to-market volatility in earnings.
Investor Verification Checklist
- Derivative Impact: Verify the reconciliation of GAAP net income to Adjusted EBITDA, specifically the $8.3 million charge for the change in fair value of derivative instruments for the nine-month period, which significantly impacts reported earnings.
- Customer Attrition: Review the 3.1% net customer attrition rate for the nine months ended June 30, 2024, and assess the sustainability of the customer base given conversion trends to natural gas and electricity.
- Debt Covenants: Confirm compliance with the fixed charge coverage ratio (1.15 required post-February 2024) and senior secured leverage ratio (max 3.0 as of June 30) under the credit agreement.
- Weather Hedge Exposure: Note the reduction in weather hedge benefit from $12.5 million in the prior year to $7.5 million in the current year, and the potential impact of future weather patterns on cash flow.
- Acquisition Integration: Monitor the integration and performance of the four businesses acquired in the first nine months of fiscal 2024 and the pending $35 million acquisition.