Good morning and welcome to the Star Gas Partners’ Fiscal 2016 First Quarter Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steven Goldman, Chief Executive Officer. Please go ahead.

Good morning and thank you for joining us today. With me today is Star’s Financial Officer, Rich Ambury. After some brief remarks, Rich will review our first quarter financial results. We will then 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, Steve 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 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 Quarterly Reports and its Annual Report and Form 10-K for the fiscal year ended September 30, 2015. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly 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 Steven Goldman. Steve?

Thanks, Chris. We are all dedicated to achieving the best possible results, regardless of the obstacles faced during any particular day or season. Needless to say, the weather we experienced in November and December was a very difficult way to start fiscal 2016. We did have plans laid out as to what we should do if such warm temperatures occur, but assume that each day this past fall and early winter brought very different forecasts for both the short-term, as well the weeks ahead. This made hiring and adjusting on staffing rather difficult for our management team. And while the adjusted EBITDA results are certainly not where we want them to be, I am very proud of how our team reacted to this difficult start to fiscal 2016. In the past few years we have seen great success in the area of net customer attrition and this has been especially true for the first fiscal quarter of each year. Fiscal 2016 has been disappointing in this regard. While losses inched up just slightly, we saw a noticeable decrease in new account signings across nearly our entire operating footprint. We believe this was due to two factors. First, the lack of adverse weather conditions, which would typically cause homeowners to seek the services we offer as a provider. And secondly much, much lower oil prices have likely caused customers to be less responsive to our marketing efforts. While we cannot do much about the weather, we can further strengthen our sales and marketing initiatives to better explain the benefits Star Gas brings to homeowners and business alike. We are looking at the first quarter as providing an important lesson in terms of developing new ways for our sales and retention strategies to be more resilient to the ever changing market conditions…

Thanks Steve, and good morning everyone. For the quarter, our home heating oil and propane volume decreased by 27 million gallons, or 26% to 80 million gallons, as the additional volume provided from acquisitions was more than offset by the impact of warmer weather, net customer attrition and other factors. Temperatures in Star's geographic areas of operation for the first quarter were 27% warmer than the fiscal 2015 first quarter and 33% warmer than normal. In fact, the first quarter of fiscal 2016 was the warmest reported in the past 30 years within our footprint. And December 2015 was the warmest December recorded in New York City in the past 116 years. Our product gross profit declined by 18% or $23 million as higher home heating oil and propane margins were more than offset by the decline in home heating oil and propane volumes sold. The continued decline in home heating oil and propane product costs contributed to the per gallon margin expansion. Over the last 24 months, we have seen a decline in home heating oil costs of $2.20 per gallon. In our delivery and branch expenses, we recorded a $12.5 million credit under our weather hedge contract. However, if heating degree days approximate normal for the balance of the contract this $12.5 million will be reduced to approximately $5.2 million. If temperatures are colder than expected, any payment under the contract could be reduced further even to zero. Outside of this, delivery and branch expenses rose $3 million due to acquisitions reduced by $5 million largely due to the warmer weather. We recorded a non-cash charge of $5.5 million for derivatives again largely due to the decline in the market value of certain hedges driven by a decrease in home heating oil costs. In the prior year's comparable…

Thanks, Rich. At this time, we will be pleased to address any questions you may have. Operator, please open the phone lines for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Dave Kanen of Aegis Capital. Please go ahead.

Good morning, guys. New shareholder. Couple of questions, in regards to the adjusted EBITDA of $36 million, does that include the full benefit of the weather hedge contract?

Yes, it does David.

Okay. In investing activities, I see cash used was $10.8 million versus about $1.680 year ago. Can you explain that to me with that one?

Yes, just give me a second. You are saying investing activities, yes, okay, sure. Yes, we bought some maintenance capital and some propane expansion and that was about $3.2 million and this year we made a couple of small acquisitions for about $7.6 million.

Okay. So given your strong financial position, I applaud that you guys responding to the things that you have control over, mainly managing your expenses and I fully understand you guys don't control, and it's difficult to model weather. The only thing that I would point out, that's little bit disappointing is, given the strong balance sheet, still the very strong cash flow is the fact that you guys didn't buy back a lot of stock, it seems to me that, such a low multiple of your cash flow like less than three times EBITDA, buying back stock actually is going to generate a higher return than making an acquisition at four to five times EBITDA. Now I'm all for a balanced approach, I think making acquisitions that are accretive to offset attrition and to generate absolute growth, exclusive of weather apples-to-apples is a good thing, but I just don't understand why you guys weren't aggressive in buying back stock, and if you could comment on that in terms of your view for the future, I would appreciate that very much. And then I'll jump back into queue and possibly ask a follow-up?

Sure. Well, we have certain hurdles that we’re going to buyback our stock at and I’m not going to broadcast with that share prices, but let’s not forget also we are under I forget what the alphabet suits is. I think it’s 12B.

[S&P]

Yes, there you go. Under that plan we really can’t make changes upward or downward in the price of our stock or what we can buy the units back for basically from the time or start working on our 10-K file or 10-K for the time we file our 10-Q. So to a certain extent we can adjust that that purchase price upward or downward for about six months or so. And that’s just kind of the mechanic on how it works.

Let me just add to that. The question about forward-looking on what we would hope to do or want to do, the way we look at it and I would think you would appreciate this. We tried to spend the money in a way that we think would be best in regard to return. So we laid out versus what we think the potential current marketplace of acquisitions or whether opportunities might be and since we can only do that a few times a year. There is some shifting in what actually becomes available so when we compare with we think as an opportunistic price target to buy back shares and with the current marketplace, so then what we’re working on in the way of acquisitions or potential acquisitions. We internally said what we think is a target and the market doesn’t go there or it doesn’t work out that combined with where we are really for real cash flow at the time. We try to make an adjustment, when we think it's prudent. Now if you go back a few months ago before we start the year we think we’re going to have normal weather and we are working on talking to a lot of people there, potentially we’re going to sell their businesses. So where we were going with cash on hand was certainly, set direction for us. We thought what we’re going to be doing something that didn’t happen, which that happens, that just constant push for us to try to get those things happen. But as the weather warmed up three or four very promising acquisition decided to kind sit on the fence on wake of the spring.. And they’re still in the mix of possibility, we don’t know if they will do it this year or not, and that weighs heavy on a decision to become more aggressive to buy back shares because well that may impact the value and it doesn’t help grow the business, which we believe from a longer term look really adds more value to the shareholders investment.

[Operator Instructions]

Is there any more questions operator?

Yes, the next question comes from David Spier of Nitor Capital. Please go ahead.

Hey, how was everything going?

Good David. How are you?

Good, good. I just have a question regarding the weather hedge. And what was the say the capacity annual premium paid for that I guess hedge?

I don’t have that number exactly, in front of me, and I don’t want to hurt my negotiations going forward with certain parties going forward, so I prefer not to disclose what I paid for them.

Okay that’s understandable.

Is that fair enough?

Yes. But, in terms of the $12.5 million, that considered a gain or is that -?

Yes, that’s $12.5 million over and above what we paid in premium, but again as we’ve outlined in the 10-Q we believe that number will be reduced to $5.2 million.

Understood. Okay. But still we have - regardless just to - it would be $5.2 million above what was paid?

Yes, sir.

Okay. Just wanted to get that clear. And then in terms of, I'd say attrition, I mean, where - I mean if you guys could comment, where do you see in terms of geographically - where is the, I guess, is there any specific area where attrition is more difficult, is there any business where the propane or heating there is more you know you see more of a consistent customer base?

Yes, I will comment on that. Our propane business is still the strongest growing element of our business, so smaller by percentage. So that business isn’t shrinking that business is really - basically just growing in every single place that we operate at this point. Heating oil probably everywhere were I would consider heat for the longer-term, meaning in the [indiscernible] and the New York area to be more challenging. I don’t know its greater in a particular place, I mean when I commented on attrition not being as good it has been for the last several years, its nowhere near where it was four, five years ago it’s still much improved over that and we are seeing the trend of gains being lower than really our losses being up. Our losses are kind of similar to our loss rates from the last couple of years. They are up very slightly and maybe the category of the type of losses shift around a little bit. Gain activity are really mobilization of customers in the marketplace is really quite down this year. And a lot of the movement of accounts has gone to COD from what we can see. It’s gone to the lowest possible point of commoditization in the marketplace, no service, lowest price. So to some degree I categorized a good portion of those as the least profitable customers migrating as they do when it gets warm and they don’t have a lot of loyalty. It happens every time when we get to a very warm period. It’s not something that I’m concerned as a trend. Now, I wouldn’t say that I’m extraordinarily satisfied with our position of where we are. I certainly believe we can do better. We are internally working on, as I mentioned some new strategy. I didn’t go into the detail, but we are really trying to refocus our whole interaction with our customer. And it’s going to take a little while to do that. It’s going to take many more than months. We actually have a whole new approach in outlook being put together internally as we look to interact on a different level, so really to differentiate ourselves from our competitors.

Got it. And I appreciate it. And then in terms of there is also recent, and I've seen also in the past in acquisition it mentioned some motor fuel business, I mean how, what is the - I guess, what's behind there and what type of business is that?

We’ve done a couple of acquisitions in the last five years that involve with some motor fuels. John Ray up in Albany, New York and Troy. And then the Griffith acquisition actually brought a much broader motor fuels business and we had the opportunity to add to do that business with a small local motor fuels business who was actually a competitor of ours since we bought the acquisition in the Baltimore, Virginia area and it gave us a little better leverage on market price and market share. They have been talking to them on and off for several years before we bought Griffith. So it was natural to pursue and complete that acquisition.

Got it. And then just last some question is and you guys have done a great job - derisking this business. I mean it couldn't have been a better timing last year when you're in a refinancing that debt piece. And this is not really related to I guess the previous question regarding buybacks versus acquisitions, because you know obviously from knowing this business you understand the need of four acquisitions and just basically the benefit of it, but in terms of as you go forward, especially as you continue to reduce your debt. And say you get that debt at that down a substantial amount. Would you ever consider in a cost benefits of especially based on your stock would be potentially replacing stock with some of that debt as it would be a lower cost option in terms of what been paid out to the equity versus what would be the cost of the debt.

Yes, I guess, there is a question there. What’s your question?

The question essentially would be is, I mean, if you can borrow obviously would be depend on if you can lower your debt further, but you could borrow at 4% and buyback equity longer term at - we’re not paying, but 5.5% plus, would you consider that option as something being highly accretive to shareholders?

I guess we would have to look at the numbers. I’m not so sure we could borrow a longer term piece of paper at 4% debt if you are talking about it.

No, I was talking about borrowing, using some of your credit line to retire equity, which as you continue to generate cash over time would be and especially because you - and then you're paying out anyway to the equity holders as you do that.

Just short, I mean, we could possibly can take a look at that, but anything that we’ve done we've always slow and steady wins the race. Nobody is going to really say that we went out and bought gangbusters on acquisitions or gangbusters on buying back our units or gangbusters aren't increasing our distributions.

No, it's worked out great so far, so I appreciate it guys.

You're welcome.

Our next question is from Michael Prouting of 10K Capital. Please go ahead.

Yes, good morning, guys.

Good morning Michael.

Good morning.

I'll do my best to - ask your questions this quarter. So first one on the expense control side, Rich, obviously you guys had a challenging December quarter, I'm just wondering how you would characterize your ability to manage costs in the March quarter versus the December quarter?

I would like to talk about that. I want to reframe it a little bit. I don’t we get answers specifically just for the March quarter. Our cost controls and response to the lack of weather in the first quarter will be a full fiscal year process. And the reason for that is we have a lot of operational commitments to serve the customer that really is the lion share of our expense during the first six months of our fiscal year that can’t as easily be reduced and some that as either been already paid for or is in the process as the weather has surprised us particularly in December. And again my comments when I mentioned was there was no forecast in October, let’s say, November will be of 20% plus and December will be of over 35% in heating degree days. So as those things materialize, we certainly kept the controlled as high as we possibly could and look for opportunities that would allow us to not spend money either as we planned or that we felt we could push off, but for the rest of the year and particularly the current quarter that we’re in, we’re operating as we respond to the weather in our customer need because if we don't do that we sacrifice our ability to attract and maintain the customers that we want and we currently have.

Okay. Thanks. And just going back to your comments about acquisitions certainly makes sense that some potential sellers would be hoping for better weather in the March quarter. So two questions related to that. Firstly, I assume that you normalize for weather, when you're looking at making acquisitions. And secondly, I’m just wondering so there’s some public companies out there and maybe private companies as well. I'm not sure that there is some balance sheet stress right now. And I'm wondering about the extent to which that might make some potentially even larger acquisitions or areas or pieces of areas available?

Well, we got, we still have the same. I'm wondering we're hopeful that perhaps as the colder season or warmish cold season unwind we will hear from some different type of acquisitions that we have - we know that to be a case, we have reached around and looked at some of the things I’m sure that same type of things you are seeing, well there is a lot of the stress in different levels of the energy market for the most part on the retail side. This type of stress is common to a lot of these family businesses and they have been use to enduring them over the years unusual every three years to five years to have to tighten the belt a lot and make it through what of causes them not to sell. They know we do normalized weather and they are hoping together a certain amount this year in their calculation. Even though we’ve had discussions where we kind of say can’t guarantee what’s going to happen January, February, and March launch just make the transaction and they just having in their mind they want to get more cash flow for themselves on top of the acquisition, because we are going to pay them to put a full value, they don’t believe that they really losing any ground although in a lot of cases they do and we try to convince them on that, but it never work, they always want to try to enjoy - get their cake and eat it too. They want to get through March, get paid by the customers and then if they’re going to sell, start talking about at April and May, try to do something over the summer and be out of it by the fall. Again, we had a few people who we’re discussing we thought that was - this fall we’re going to see a few more acquisitions and as it warmed up, they said we’re going to sit and wait, and there were several of them that we were pretty we want to do it, and it happens.

Okay, fair enough. And I guess, the piece related to that, do you seeing the opportunities to acquire geographies from public companies that may be in the business that are experiencing balance sheet stresses results of issues and other parts of their business?

I hate to say never but for the most part unless they are looking to sell pieces of their business they are - while contiguous to our operations or within our operations. I doubt that those opportunities are going to present themselves. What could happen is, several publicly traded MLPs in the propane space have ended up with some heating oil assets and they may have interest to sell them off as they delever a little bit if they’ve seen them underperforming is weather. I mean we certainly would have interest in buying any of those assets if they were to look to sell them.

Okay great. Thanks for answering my questions.

You’re welcome.

Our next question is from George Melas of MKH Management. Please go ahead.

Yes, thanks for taking my questions. I'm new to this story. And I have a question on the spread, it seems that spread was quite healthy this quarter, and it seems like it has held up quite well. And I'm just wondering on the dynamics of the spread, and I was worried that maybe the lower fuel prices, small operators could have basically their borrowing power could translate into more volume, and the whole market could get even more competitive. Can you comment on the possibility of that and sort of the dynamic of this plan?

Well, that is the reality of the marketplace and that’s why lower level service performing companies are picking up more accounts, some COD companies don’t even portray themselves as COD companies. They may call themselves full serve, but they don’t really offer the type of service we do nor our closest competitors. And the spread primarily is a result of this unbelievably shifting marketplace. The market has moved down in the second half of this past quarter almost $0.50 so just about $0.50. And it has swung up $0.15, $0.20 each way at a time and that volatility certainly has added to our opportunity to expand margins, but to your point there is a lot of pressure in the marketplace and now as heating oil is rising again with the cost of oil, there is greater pressure and maybe some smaller competitors may not feel that same pressure to protect the product and hedge as we do. And they will offer lower price just to hold on to gallons and customers at what we think are not profitable prices. That does happen and it happens all the time this is not for the most part where we like the market to be. Somewhere little above this from a pricing standpoint works a little bit better.

Okay. But if you look at the margin this quarter and the year-ago quarter, is the margin this quarter was slightly ahead?

And we've had a continuing decline in the price of home heating oil, at least during - through Mid-January and that to a certain extent has started to reverse in the past 20 days or 15 to 20 day.

Okay. And so this decline in the way helps the spread?

Yes, it does.

Okay. Thank you very much.

You’re welcome.

Our next question is a follow-up from David Kanen of Aegis Capital. Please go ahead.

Okay. First one is a follow-up on George's question. The gross margin was up from 38% to 40.7%. And I understand why, because the wholesale cost went down. If we pretty much stay in this range, do you think that's a sustainable level 40.7%. And would the ideal situation be for you, let's say next year, much colder weather you sell more gallons, but the commodity itself remains at this price. Would that not be sort of like the perfect storm for you guys?

Well, first of all, we don't look at anything on a percentage basis, the way that we look at it as we look at it on a per gallon basis. We do everything on a per gallon basis as our per gallon margin not as a percent. And you're right we got about an $0.08 increase this year versus last year. I think we came in at $1.18 versus $1.10 for the first quarter of last year. Like we’ve been saying for the past year, year and a half we’ve seen a tremendous decrease in the price of home heating oil of about the past 24 months at least through December were down $2.20 a gallon and we’ve reached some of that benefit for sure. Going forward, I can’t predict the margins, but we’ve cautioned folks that some of the margins that we’ve gotten has been very attractive to us.

But if pricing remains, let's call it range bound and the weather is much colder and we're selling many more gallons next year that would significantly benefit you, correct?

Yes, just like you see in this year we went I think the trailing 12-month EBITDA in the 120-ish range versus last year where we had cold weather I think we’re in a $143 million range or $140 million range.

Exactly, okay.

More volume in colder weather is good for us.

Okay. A question on your let's call it non-commodity based revenue, which I know is it's mostly service contracts and heating and AC. Have you guys seriously contemplated cross selling partnerships, which I believe couldn't expand the multiple dramatically of the company and I'm just going to throw out some ideas. I'm not saying, I've got all the answers and this is what you need to go with, but I'm going to give you some ideas. For example, home security, connected home, there are technologies for example with Telco's service, Voice over IP at very disruptive prices, in Long Island and Connecticut everybody hates Cablevision. I hope they're not on the call, but if you can provide a disruptive tech partner with someone that's price disruptor. I think you would have an opportunity to gain subscribers this should provide incremental high-margin recurring revenue, but also put you in a space where the multiples are significantly higher than three times EBITDA. So, I'd like you to answer that, if you're looking at that and open to that. And then the last thing is, this is more just a comment or a message to you guys and also to the Board. Just quick back of the envelope competition, last year, which was a good decent year you did $140 million in EBITDA, which is about $2.45 per share? We know the weather is going to bounce around, but it seems like the $140 million is certainly within our realm in the future, if the weather lines up. If we would…

That was a weather, that was 5% colder, let’s start out with that and some great margin.

Okay.

Okay.

But our margins are a little better now, and we're getting a little bit more per gallon. But let's, even if I haircut that, here's my point. If we assume that in the next three years, we spent $70 million a year to buy back stock a total of $210 million. And even if we paid an average of $10, we would get our share count down to $36 million shares, okay. So our EBITDA per share, I did it at a $140 million, even if you want to haircut it so be it. Our EBITDA per share would go from $2.45 to $3.88. And this is something that we have control over, we don’t control commodity prices, the weather, et cetera. But that's a significant increase in the EBITDA per share and then that would also be the benefit that the dividend assuming we maintain roughly the same $22 million in payout, which significantly go up from $0.38 to $0.61. I did that quickly. So you might want to double check my math. But I think a five multiple - excluding if we're successful in these cross-selling opportunities. Let's say we're in the exact same business. We don't really have success in penetrating those other markets. There are times where the industry certainly trades at five times, some of your competitors do. At five times $3.88, we could be nearing $20 a share, so it's really a commentary on the message for you guys and for the Board, just seriously contemplated, but I don't want in anyway indicator takeaway from the good job that you guys have done and managing costs and so forth. And I know you're working hard, but I can't, as a shareholder, I have to express that to you guys. Thank you.

Sure. And kind of answer your first question about cross-selling, we’ve tried something, we’ve been successful at something, something we have not, but when you look at the discussion there are salesmen, that our sales force needs to make. There is always a pricing plan discussion as to whether someone need a fixed or a CAF, whether to be on a budget payment plan, whether we are going to sell them air-conditioning, whether to sell them the service contract. We do have a security division which we try to sell them our own home security. So we do have a quite a few of laundry list of our own internal products that we have. By the time you get down to the seventh, or eighth, or ninth or tenth service offering that customer does become a little bit pity.

What I will say to your thought is, we are currently and it’s been going on for about the last six months it doesn’t happen as fast as you may think. We are exploring some relationships and I really can’t at this moment discuss with those partners are with particularly you know from the company as you know that are from the Internet to cross brand our services. And we are hopeful could some of that stuff is still fledgling out of those very big companies can take the relationships with product consumers and translate that into service consumption, if that works and we already on that and it could dynamically change what we do, but we have not seen the impact of that yet because we are about to start the test in the next several months. It will be small and we are just trying to see how that actually works. Does it offer discount? The price of services. Do we really benefit from the relationship as we are hoping and then can we build on that? And then to your thought about buying back shares, again people invest in things for different reasons. We as a company take a very long view of the business and acquisitions are really a priority to try to buy when they are available. So I don't think exhausting most of the cash that is available, that’s not distributed solely to buy back shares would be a direction that we would preserve at this point, it certainly not something culturally and what we've displayed our behavior to be that we are looking to grow our business for future benefit to those people than our long-term investors. And a lot of our investors are long-term investors and they’ve seen the benefit of that as they’ve been involved certain start for many years and we have slowly and I think carefully sort to maintain the business. You remember that it’s only in the last couple of years that we’ve able to really get attrition on the control to a more nominal level and we are hoping obviously the better than the coming years, but without acquisitions supporting that over the last several years we wouldn’t be in the shape we are in.

Right. I am not recommending an unbalanced approach. I'm saying use every lever that you guys have every tool and your box including acquisitions, but I threw out that number, because it seems to be a doable number, I would prefer at these kind of multiples buyback even over dividend. So, thanks for your time, guys and good luck and hopefully the weather works out in our favor.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Goldman for any closing remarks.

Okay thank you and thank you for taking the time today for joining us and for your ongoing interest in Star Gas. And we look forward to sharing our second quarter 2016 results with you in May.

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