Star Group, L.P. (SGU) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Star Gas Fiscal 2012 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Chief Executive Officer, Dan Donovan. Sir, you may begin.

Okay. Thank you, Shannon. Good morning and thank you for joining us today. With me is Star's Chief Financial Officer, Rich Ambury, and our Chief Operating Officer, Steve Goldman. After some brief remarks by me, Rich will review the fourth quarter and the fiscal year ended September 30, 2012. And this will be followed by some comments from Steve regarding operating results. And then, of course, as always, we'll be pleased to take your questions. Before we begin, Chris Witty of our Investor Relations firm, Darrow Associates, will read the Safe Harbor Statement. Please go ahead, Chris.

Thanks, Dan, and good morning. This conference call may include forward-looking statements that represent the partnership's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the partnership's actual results -- 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 partnership 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. Important factors that could cause actual results to differ materially from the partnership's expectations are disclosed in this conference call and in the partnership's annual report and Form 10-K for the fiscal year ended September 30, 2012. All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are especially qualified in their entirety by the cautionary statements. Unless otherwise required by law, the partnership 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 back over to Dan Donovan. Dan?

Okay. Thanks, Chris. In my comments, this time last year, I said we feel the partnership was well-prepared. Well thankfully we were, given the extreme warm winter we had, continued high oil prices and the recent storm in the northeast with associated massive power outages and flooding. And of course all of this was topped off by a freak nor'easter snowstorm in November. Combined, these were unprecedented challenges in our industry, hardships that few will ever forget, particularly in Long Island and New York City. While cold weather was the obvious missing element in fiscal 2012, we made up some of the ground in several areas, which allowed us to achieve adjusted EBITDA of $61.7 million. Most importantly, our management team showed the ability to operate in a lean cost environment and still deliver the highest level of service to our customers, while streamlining and restructuring was applied across the board at all levels and will positively affect our expense structure going forward. We also continue to grow other revenue streams such as propane, plumbing, air-conditioning and servicing natural gas homes. All of these will become even more important when combined with the return to normal weather. In addition to the challenging aspects of a warm winter, we continue to market in a high-cost environment. Product expense on a per gallon basis was 16.8% higher this past year than in fiscal year 2011 and on average, past all previous records. Unfortunately, that trend is continuing. The combination of warm weather and higher product costs contributed significantly to an increase in attrition, driven by conversions to natural gas, move-outs, low-price offers and accounts failing to meet acceptable credit standards. We feel confident that we have the correct mechanisms and controls in place to control attrition. But warm weather, which does not provide us with the opportunity to emphasize our value, combined with high oil prices, make that task all the more difficult. Attrition exceeded the previous year by 6,200 accounts or 1.4%, but Star was able to largely offset this by completing 7 acquisitions that added 41,000 home heating oil and propane customers. As always, we continue to evaluate new acquisition candidates and are optimistic that we'll be able to close on some of these in the future. While Steve will have more comments on how we dealt with the October 29th storm Sandy, let me just say that it was a challenging task, but one that we met head-on. In coping with the many, many calls from customers and noncustomers alike, looking for heating equipment replacement due mainly to flood damage, our operations and sales teams went above and beyond in all respects. Marshaling resources and assets from other areas within our footprint enabled us to respond to the surge in demand. This is something that few, if any, of our competitors could do. As an example of the increased workload, daily installations in Long Island and New York City, which were the hardest-hit areas, increased from a normalized rate of approximately 20 installations per day to well over 50. We are still busy with this work, but confident in our ability to serve our customers as well. We certainly look forward to a more normalized weather conditions in the coming fiscal year. And with that, I'll turn the call over to Rich to provide some comments on the fourth quarter and the fiscal year-end financial results.

Thanks, Dan, and good morning, everyone. Starting with the quarter, our volume increased 4% as the impact from acquisitions more than offset the effect of net customer attrition. Our total gross profit did rise by 7.5% or $2.3 million and again, that was largely due to acquisitions. Total operating costs, which includes delivery, branch and G&A, decreased by $8.3 million, as the operating costs attributable to recent acquisitions was more than offset by lower expenses in our base business. Changes in reserves for insurance and doubtful account, combined with our focus on the curtailment of any and all extraneous expenses during this once-in-a-century year, drove the overall reduction in cost. Star's operating loss declined by $33.8 million to a loss of $7.5 million, due primarily to a favorable noncash change in the fair value of derivative instruments of $23.3 million, the increase in gross profit of $2.3 million and the reduction in operating cost of $8.3 million. We posted a net loss for the quarter of $5.6 million, or $21 million less than the net loss of $26.7 million in the prior-year period. The adjusted EBITDA loss, though, did decrease by $10.6 million to a loss of $13 million, largely due to our expense control initiatives. Now turning to the fiscal year results. Home heating oil and propane volume for the full year decreased by 78 million gallons, or 22%, to 277 million gallons as the impact of warmer temperatures, net customer attrition and other factors more than offset the additional volume provided by acquisitions. Temperatures of Star's geographic areas of operations were 21% warmer than the prior year and 22% warmer than normal. As noted in our second quarter press release, the heating season of fiscal 2012 was the warmest in 112 years within the New York metropolitan area. Our per gallon margins, though, did increase by $0.018 per gallon or 2% during fiscal 2012, but this was not sufficient to offset the 78 million-gallon decline in home heating oil and propane volume, which led ultimately to a reduction in product gross profit of $64 million. Adjusted EBITDA for fiscal 2012 was $61.7 million, $21 million less than the prior year. Again, our efforts at reducing operating costs significantly reduced the $64 million decrease in product gross profit. Delivery and branch expenses declined by over $35 million, as the additional expenses from acquisitions of 13 [ph] were more than offset by a $35.5 million reduction in the base business operating expenses, as well as a $12.5 million received under our warm weather hedge. Service and installation profitability also improved by $7.6 million, which again, was largely driven by our efforts at cost control and favorably impacted adjusted EBITDA on a year-over-year comparison. We posted net income of $26 million, $1.6 million higher than the prior year period, reflecting the after-tax impact of the decline in adjusted EBITDA of $21 million, a favorable noncash change in the fair value of derivatives of $11 million, lower net interest expense of $1.2 million, along with the lower effective tax rate. Now moving over to the balance sheet. As of September 30, 2012, we had approximately $108 million in cash on hand, 0 borrowings from our bank group and long-term debt of $125 million. With regard to our cash, we continue to seek attractive acquisition opportunities within the constraints of our revolving credit facility and funding resources. This past July, our board authorized the purchase of $3 million -- excuse me, 3 million common units, of which 700,000 have been repurchased as of November 30, 2012. As I mentioned on our third quarter conference call, we have already purchased warm weather protection of $12.5 million for each of fiscal years 2013, '14 and 2015. Now I'd like to turn over the call to Steve for some further comments on our operations.

Thank you, Rich, and good morning, everyone. This past quarter's performance reflected a very well executed piece of the plan that our team laid out early in the second quarter, when the weather we expected never seemed to materialize. We challenged our team to tighten our expenses and operating plans as much as they could and learn to respond rapidly to any anomalies which might arise, while never taking their eye off of the goal of providing excellent customer service and broadening our service offerings. Rich mentioned the very positive impact our expense control efforts have made, and there are many changes that have become permanent practices in the way we operate. Our team has shown great adaptability, as well as dedication to our organizational goals. Without the strength of our people, the results certainly would have not have been as good as they were this quarter and this year. And many of the conditions we endured in fiscal 2012 still face us today. These include, but are not limited to, a weak economy, relatively high oil prices, escalating labor and benefit costs, lower cost competition and strong efforts by natural gas providers to convert oil-heated homes to their product. One of the areas we were most pleased about this past quarter was the continued growth of our propane operations. They continue to slowly expand by winning over customers not accustomed to our high level of service. We now offer propane in nearly all of our operating areas, a very nice accomplishment in just 3 years. Similarly, we have seen continued growth in our plumbing and natural gas service offerings, although to a smaller scale. This should be a great opportunity for us as we move forward. As this year wound down, our discussions with potential acquisitions continued, but most companies have decided to run their own operations a while longer to recoup some of the financial shortfall they experienced in the past 12 months. The acquisitions we have made have transitioned very well and we have been very successful using the tried and true method of integrating these new member companies into our family of businesses. Now let me talk briefly about the recent storm that blasted the East Coast, Sandy. During this and prior conference calls, we have discussed various conditions that we cannot predict or plan for, and our hope, as always, that we built a flexible enough platform to handle most obstacles with good management. Subsequent to the end of the quarter, Sandy, followed rapidly by a nor'easter, delivered a one-two punch to the center of our operating area. As Dan mentioned, we believe our response was excellent. That does not mean perfect or without great challenges, but our infrastructure enabled us to perform for our customers in numerous ways that most competitors could not. While the impact of the storm continue to affect our operations today, we believe we truly rose to the occasion and distinguished ourselves across the board. Of course, it wasn't just our setup that allow us to respond faster and better than anyone else in our area, I believe our planning for the storm was outstanding. The post-storm response was characterized by unbelievable teamwork and selfless determination by our workers to help as many customers as possible, as fast as possible. While these storms were certainly very trying events for our communities and our customers, they were also a very unusual chance to show just who we are as a company. We cannot be prouder of all our Star Gas employees. And with that, I'll turn the call back over to Dan.

Okay. Thanks, Steve. At this time, Shannon, we'll be pleased to address any questions that those listening might have. So you can please open the phone lines for questions.

[Operator Instructions] Our first question is from Michael Prouting of 10K Capital.

Just on Sandy, so in financial terms, how do you expect that to affect the December quarter?

Well, we really don't think that it's going to have a major impact one way or the other because we planned it out pretty well. In other words, we made sure that our revenues are going to meet our expenses and we did have a lot of overtime. When Steve refers to, and I refer to, the fact that we did what other companies can't do, we brought in people from other areas such as Maryland, Pennsylvania, New Jersey, Rhode Island, to do all of these installations that people needed quickly. And we feel that based upon how we priced our product, we priced it appropriately, we will probably be making the same profit margins we've always made, but at the same time, covering our expense. So we feel that we'll be fine.

Mike, I'd add one thing to that, which is, there is a real lag to this whole response that still is unseen. We don't -- we obviously haven't finished all the installations. We haven't collected all the money due on all these installations, which will be a task. We reconciled the direct expenses that were experienced during the period, but there are other expenses that are now being experienced because we've had to put off normal service work to be able to do this emergency response. So to give a real estimation beyond that, it won't be harmful to the business at this point, from what we can see, would be the fairest thing that we can say on this call. But I would say that our focus really wasn't trying to make extra money during this. And our 2 focuses was -- were, trying not to lose money during the effort to give our customers good service and trying to strengthen our account base as much as possible. So where other people couldn't respond, we tried to respond to other customers in the marketplace that weren't getting the response they needed.

Yes. Michael, so just add to that, too. We looked at the warm winter as an opportunity to make ourselves a stronger company, so we turned a problem into an opportunity, which we think we'll do as well going forward. It's the same thing with the hurricane. While, obviously, we don't want to see anymore hurricanes, to say the least, but it affected, by the way, a lot of our employees. It does provide us the opportunity to emphasize the value that Star Gas companies have because we were able to do things that other companies who work solely in that area hit could not do. So it did give us an opportunity to show the value of dealing with a full service company like Star Gas that has a wide footprint, that has redundant resources that could be used in any one area. We have seen this in the past when there'd be a large snowstorm in Rhode Island or maybe a large snowstorm or a hurricane. I remember, a few years ago, it hit Maryland. We were able to bring people and crews, office people, field people, down to Maryland up to Rhode Island to help them out during that particular period and it does show our customers the value of dealing with a company such as ours, so I think that's one of the best things that can come out of a situation such as this.

And one thing I'd like to add, as far as the volume goes, folks were without electricity, and without electricity, they couldn't power their equipment. So that volume that we would have delivered for that period, it's sort of lost for fiscal 2013. To what extent that is, we don't really know.

Okay, great. Well, congratulations on handling that. I have to just say, I don't live on the East Coast and didn't have to live through that myself, but certainly looking at the press coverage from the West Coast, it looked like a challenging environment, so congratulations on that. Any thoughts in terms of how many customers you might be able to add as a result of those strong efforts?

No, it's really hard to get a gauge on that. It's something that people think about in the long term saying, hey, what type of company do I want servicing my home? And that's always been our niche, is we're trying to appeal to full-service customers who are really interested in protecting their home. And if they are, we're the company to do that. But what the long-term result of that is, we don't know. We're hoping, obviously, that we gain more customers and lose less.

Great. And just a question in terms of customer relationship management or whatever. I mean, this isn't something that you've talked about on calls before. But I mean, I'm just curious, I assume you maintain databases of prior customers that you've lost to competitors. Does this create an opportunity to reach out, maybe to lost customers and try to bring them back into the fold?

Yes. Yes, we always do that. We've always done that. Really, our database -- we know customers that we've had, that we've lost, that we've gained back. So we do have that data. And we do market to those customers on a regular basis.

Okay. Okay, well, that's good to know. And then just on that same point, on customer churn. It looked like you were doing reasonably well throughout the year, and then things ticked up a bit at the end of the fiscal year, both in terms of decline and the number of customers you added, as well as an increase in the number of customers you lost. What was going on there? And what are your thoughts about customer churn going forward?

Well, as I mentioned in my comments, customer churn, the main reasons would be there definitely had been an uptick in conversions to natural gas because the price of natural gas is so much lower. And it's obviously something people are going to look at. We feel we have an advantage against natural gas on the fact of the type of service we can deliver. Once you convert to your utility, then you have to find somebody to service you, which is one of the reasons that we are moving to doing more and more service for natural gas homes. Then there's the price issue. As I said, the price of oil was at a record high, that is a problem. So you're going to have losses there. And of course, you're going to have, with the state of the economy, losses to people who can't meet our credit terms. So those all are an uptick and in our business, a lot of times, people don't make the decision to leave until the season ends. So they may be thinking, hey, you know, I really am going to convert to natural gas or I'm going to find a COD or a lower-priced company, but they don't do it until the summer, the spring or now. They don't do it in the middle of winter.

Also one thing that happened at the tail end of our fiscal year, it's also the first thoughts of customers, what they're going to do for that winter. In a lot of cases, they take their last seasonal delivery in the spring, in April or May. They don't really need a delivery, because, of heating oil, because they're not having any heat consumption during the summer. They may only be using heating oil for heating their hot water. And come September, October, not only are they making a decision, are they going to continue with heating oil, continue with us, but we may be making a decision because they haven't paid their bill. And that's why we also see credit losses tick up because we've seen some people carrying balances and that we have to make the decision. We know they need another delivery. They may be extended to the point where they cannot make sufficient credit arrangements with us. So we move forward and make a decision that they no longer are a viable customer. And unfortunately, those are in the numbers. We don't like to be at that position, but a customer that can't pay us isn't really a customer anymore.

Understood. I mean, all those factors really speak more to customer losses as opposed to lower customer gains, I mean, just at least looking on a year-over-year basis. It looks like it was actually more a shortfall in customer gains as opposed to an increase in customer losses that drove the increased churn in the September quarter. All those factors you talked about, are more about losses. Any thoughts in terms of what might have driven that lower number as far as customer gains are concerned?

Well, price, of course, is a big issue and a lot of people were waiting. And they're still waiting. We have a lot of homes that are still vacant. If you look at our gains overall on a year-to-year basis, we're virtually the same as last year. It just fell out a little bit more in the months of August and September. But the same reasons why people will shop for oil is the same reason they might not want to sign for anybody either. Especially coming out of a warm year, people unfortunately have very short memory sometimes and they're coming out of a warm winter and they're thinking, hey, do I really need a full-service company or can I get away with a COD or a lower-priced company. And that affects -- not only does it affect your losses but it affects your gains.

I think that's a good point Dan makes. We've seen the evidence of that bearing out in our own results, we did have an uptick in COD business this year for the same period. We're experiencing that all over. It ranges from a few percent to over 10% increase in COD volumes, depending on what area. And a lot of it has to do with the noncommittal nature of the customer right now coming off a very warm winter, even though we say it's the only winter like this in our memory and it's the worst, warmest year in 112 years. A lot of customers are thinking hey, maybe it's going to be like this forever and I can get by using COD. I think a nice cold shot this coming winter may change their minds back to reality, hopefully.

Or if their heating equipment -- if their heating equipment is under water and they need it replaced, when they go to the COD company to get it replaced, they're going to get a very poor response, I can guarantee you that. So they may see the value of dealing with a company like Petro that will be able to put that equipment in at a much faster timeframe.

Okay. I'll just ask one more question and then maybe double back with some other questions so that I don't annoy you guys and maybe other people on the call that want to ask questions. So just one last question for right now. As far as weather goes, I mean, just looking at heating days, it looked like there was an increase in November. I'm just -- you guys obviously keep a much closer tab on this than folks outside of the business. I'm just wondering what you're seeing as far as forecast for the rest of the heating season.

As far as a forecast, I can't give you a forecast, but through December 10, we're up about 200 heating degree days this year versus last year. We had for October, November through December 10, we had around 821 heating degree days, and the same period this year is about 1,035, at least that's in the New York metropolitan area, which we track on a daily basis.

So as far as the forecast, we hear the same thing that everybody else hears if they listen to the radio, or they read AccuWeather or any others. And most people are saying that the rest of December is going to get a little bit colder day by day. We're supposed to get some wet weather, some snow starting this Sunday. And most people are calling for a normal January and February. I hope they're right.

Our next question is from Jeff Graham [ph] of Bandera Partners.

I mean, my question was essentially answered in that last batch of questions, so I'm good.

Our next question is from Ed Olsen [ph], private investor.

Two quick questions. Would you be -- give us some specifics on the propane, like percentage increases or volumes or some numbers on that. And then given these acquisitions, are there any significant redundant facilities that might be sold at some point?

To answer the first, we grew propane by acquisition by about 4,000 accounts in this fiscal year and organically, about another 3,000 accounts. So we grew by about 7,000 accounts. Steve, do you want to talk about our facilities?

We've expanded 6 more sites in the past 6 months. We have no other expansions going on right now. We pretty much have footprint saturation, where we feel comfortable. Our oldest sites that we put on the last couple of years are progressing very nicely, which means that they've brought in their base to the point that they're getting their head above water where they're not really costing us to operate. They're really a true operating site for propane. They're continuing to add accounts as our reputation grows. Typically, our growth is right on plan, which is, for the different bases, anywhere from 8% to 12%, depending on which location we're at. We are getting accustomed to the nature of our propane customers, which is a little different than propane at large. Our footprint doesn't offer a lot of heat-only propane use. It's a lot of small users, which could be pool heaters, cooking, secondarily supplemental heating, some agricultural business, which is relatively small but important, some commercial. And at its current size, being so small, any small change really impacts our volume, good or bad. Again, we're getting used to some of this. I think we've done it very carefully and very safely and properly. And our pricing is good and it's very well managed. We're moving along undaunted. I think the clip is very promising, but the pace is a controlled one. It's not -- there's no way where we're doubling our operations overnight. But they are growing in a healthy way. And our losses on those accounts that we've gained over a couple of years are very low. So the net attrition rate on these propane customers is very good. They seem to be very satisfied. We're getting good recommendations and they look like good healthy profitable accounts. And what we really need to happen with this business is better utilization of our vehicles. Since most of our locations are co-locations with our heating oil business, it's better utilization of our existing facilities. But we invested by buying propane equipment and now we have to get full utilization. A couple of markets have expanded to the point where we've added more fleet, which is very good, obviously, very promising. And one note on propane, the hurricane or Superstorm Sandy, one of the offshoots was we got some greater recognition in the propane space because our responsiveness to propane customers was better than average. We were able to get out, we were fully manned, we were staffed, we kept our dedication to propane operations distinct and we never wavered. We picked up some very large customers in the commercial space because their service provider was not able to help them during the storm, particularly for generator use.

Great. As a percentage of the overall, this is the multiple expander [ph] what's happening there?

Percentage of accounts, it's very small.

No, no. What's the percentage of propane in the overall firm?

5.5%.

5.5%?

Right. But last year it was 3.5%.

Okay. That's the number I'm looking for, okay. And what about redundant facilities?

They're all, basically all -- well, they're not redundant. They're, as I mentioned, co-locations. We don't have independent propane sites in the same footprint with heating oil, where they're just existing because of their -- for propane. We've either already combined them or they were growing out of a heating oil location. Or they're propane and they're outside of our reach of heating oil and then we might be looking to add heating oil or HVAC or some other type of customer service.

No, I'm thinking more of the Maryland acquisition for instance. Were there any port facilities there or anywhere that just are not necessary and could be sold?

No, those operations that we purchased are stand-alone because of their size. But what we are doing is leveraging as we always did. And as I mentioned in my comments, the tried-and-true method of acquisition assimilation, it's keep the brand, keep the customer contact people, whether it's tech [ph] drivers, customer service or even frontline management that our customers are accustomed to, but then look for synergies in the back office, which typically are supply, dispatch, administration, accounting, possibly sales. And the infrastructure of the buildings were trimmed down to the size we need to store vehicles and any direct support people. Right now, whatever we purchase with those operations, we need. In fact, we were a little tight on some of that facility-wise, but people, we're starting to see synergies relatively quickly. We're realizing a little faster than we imagined.

Okay. Let me just double back for a second at propane. So 3.5% to 5.5% year-over-year growth. And if you apply the 8% to 12% number that was mentioned, that will have a greater slope in terms of a percentage of the firm, meaning propane overall will grow faster than that. Is that a correct assumption?

Well, based on the current experience we've had for the last couple of years, our attrition in heating oil is, as we know, the industry for our experience has been a problem. But from a propane standpoint, our base is so small and our retention seems to be very good. It's a growth situation. So that's what's changed in the proportion when you exclude acquisitions. Heating oil had some shrinkage. Propane has a steady clip of growth. And we're picking up as a share, 1% to 2% for the last couple of years. And we don't -- that is in our plan. That is how our plan is laid out, that propane is going to be positive. It's going to be a growth part of our business. And heating oil, while we're fighting the best fight we possibly can, there is a loss rate built into our operating plan, non-acquisition-based. So organically, while we're gaining sales in heating oil, we're not planning to be net ahead without acquisitions. But in propane, we are.

No, no, I get that. But just -- let me just check my reasoning here. If you went from 3.5% to 5.5% as a percentage of the overall firm's revenues and you put the 8% to 12% growth expectations on that, that means that the percentage of the overall volume will grow faster.

Yes. The simple answer is yes.

Okay, got you. Now can I give you my Christmas list?

We're referring to accounts, which is different than revenues.

No, no, I understand. But the revenue -- this is the multiple driver in my humble view. Can I give you my wish list for Christmas?

If you take mine.

I certainly will. Let me give you mine. A hefty year-end dividend, since we have all that cash and a generous dividend increase in the first quarter.

Okay. Okay, we'll ask Santa and see what he has to say.

What would you like?

We're always looking at distributions. As we've said in the past, we're owners of the stock and we're aligned with shareholders in your desire and everybody else's desire to see distributions rise over time.

No, but you understand my wish list?

Sure, I do.

Okay. What's yours? More shareholders?

No hurricanes, cold weather, happy shareholders, happy customers.

[Operator Instructions] We have a follow-up question from Michael Prouting of 10K Capital.

So on the financial side of things, I'm assuming that given the more normal winter environment, I assume that you're not going to -- or your expectation would be that you won't require any additional waivers from the lenders at this point to continue paying the current distribution?

We actually, in the quarter, worked out of the penalty box [ph], as far as the waivers go, so that we were -- even though we had a waiver, we don't really need the waiver during the quarter because our fixed charge coverage ratio was above 1.15x. So I guess, the simple answer is no, we don't need any additional waivers at this time.

Okay, great. And as far as acquisitions are concerned, I mean I know, or at least I would assume that the majority of your competitors are being run by folks who aren't getting any older. I mean, it's understandable that after a really crappy season last year, that they may want to hang on. I guess, any updates in terms of opportunities, multiples, that kind of stuff?

Well, we always see opportunities out there. Sometimes they say okay, X is happening, so we'll get more acquisition opportunities and it happens or it doesn't happen. It's six of one, half a dozen of the other. We really don't know how people are looking at the business. But as always, there are always opportunities out there. We're always looking at different acquisitions. We are looking at lower multiples, there's no doubt about that. The multiples are probably a little bit less than 4. But we're always looking and there's always somebody asking because they're looking to see what their businesses is worth and we try to be as honest and upfront with them as possible as to how we're going to run the business, how we're going to try to keep it, if it's a successful business, try to keep it running successfully, which means, as Steve mentioned, we usually will keep the brand and we'll keep the employees who know those customers. And we evaluate all of that in the financial model, which tells us whether we want to even make an offer or not. So we're thinking that coming out of this heating season, if it's cold, it'll probably have some developments around the February, March timeframe and we'll see what happens.

Okay, great. And then last question is, as I'm sure you and everyone else on the call will be relieved to hear, I just want to -- and this sort of same question that in some ways is being asked already, I just want to ask it a little bit differently. So in terms of priorities for free cash flow, help us think about how you look at that. I mean, obviously, you're almost in a net positive, almost, in a net positive net cash position as of the end of the fiscal year. Presumably, you'll be generating, again, pretty decent cash flow in the current fiscal year. How are you thinking about priorities in terms of, say, keeping dry powder for acquisitions, increasing the distribution modestly, given that there are at least some folks out there that screen for consistent distribution increases, which I think could benefit the multiple more than just a miniscule increase in the dividend yield, if you will, from a small increase in the distribution, and then unit repurchases.

I think our primary source of cash or use of cash going into the heating season is to fund our working capital. While we do have $108 million of cash on the balance sheet at the end of September, our receivables are down, despite higher prices. And one of the reasons that receivables are down is because we had the lousy year. So we don't have a normal level of receivables on our balance sheet. In addition to that, our customers who are on a budget payment plan, their balances are up as well for basically the same reason. And we went into fiscal 2013 due to the higher prices, with not the same quantities of inventory on hand. So while we do have $108 million in cash, our first priority is to finance our receivables and inventory for the upcoming heating season. After that, I would say our second priority would be acquisitions to the extent that they become available.

Any thoughts then in terms of a modest increase in the distribution, given that there are a lot of investors, both quant as well as fundamental investors that do actually screen for that.

Well, it's something that the board always looks at. We still have, just like our customers do, we still have the recent past winter in mind. We still have in mind the fact that heating oil prices were erratic this past year. They go up and down like a roller coaster, they're still pretty high, at over $3 a gallon. But it is something that the board always looks at and I'm sure they'll be looking at it again in January. And we'll make the appropriate decision based upon what the winter has looked at that particular time, what our acquisitions might look at and what the cost of oil might be.

Okay, great. I mean in terms of my wish list or request or suggestions or what have you, I mean, I think on a long-term basis, buying back units is a lot more accretive than one-time distributions or what have you. But I think at the same time, that it's helpful and important to continue modest increases in the distribution for the reasons that I already talked about.

Thanks, Mike, and we do appreciate your questions.

I'm showing no further questions at this time. I would now like to turn the conference back over to Dan Donovan for closing remarks.

Okay. Well, I just want to thank everybody for taking the time to join us today and for the ongoing interest in Star Gas. I hope everyone has a great holiday. And we look forward to sharing our first quarter results with you in February. Thank you.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.