Good morning, and welcome to the Star Group Fiscal 2018 Third Quarter Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Steve Goldman, CEO. Please go ahead.

Thanks, Carrie. Good morning, and thank you for joining us today. With me today is Star's Chief Financial Officer, Rich Ambury. After some brief remarks, Rich will review our third 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 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. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call and in the company's annual report on Form 10-K for the fiscal year ended September 30, 2017. 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 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 Steve Goldman. Steve?

Thanks, Chris. Good morning, everyone, and thanks for joining our third quarter conference call. The spring and summer months are often ones dedicated to analyzing the past winter's performance and working to improve overall operations for the year to come. This past third quarter was a bit busier than normal, however, as temperatures early in the period were rather cool. And the entire quarter was 23% colder than normal, as Rich will review this in a moment. This helped drive overall volumes, which combined with generally higher oil prices resulted in a significant year-over-year top line revenue growth. We were pleased with our overall performance during the quarter but saw a net attrition of 8,300 accounts during the quarter, as customers began to shop around after the winter had finally run its course. Our third quarter attrition was more in line with that of 2016 when we lost 6,700 net accounts versus last year, it's relatively modest, 4,700. But I'd like to add that approximately 500 of those losses this year was due to account cleanup on our part, and additional 600 were due to credit issues. Still the higher net attrition was somewhat expected given this year's winter anomalies. Higher product costs also typically spare customers to consider switching vendors. So this has obviously been a negative factor as well. At the end of the day, while several factors have been against us in terms of attrition this fiscal year, we remain focused on providing the best customer service possible and preparing the company for whatever next year's winter will bring. The quarter was also a busy time in terms of acquisition offerings, and we're pleased to close on 2 transactions in New Jersey and Pennsylvania. These brought in approximately 12,000 heating oil accounts and 1,700 motor fuel accounts…

Thanks, Steve, and good morning, everyone. For the quarter, our home heating oil and propane volume increased by 14 million gallons or 34% to 55 million gallons, as colder temperatures and acquisitions more than offset the impact of net customer attrition and other factors. Temperatures for the fiscal 2018 third quarter were 23% colder than last year, and about 1% colder than normal. Our product gross profit increased by $16 million or 30% to $70 million due to higher home heating oil and propane volume sales. Home heating oil and propane margins declined, however, by $0.03 per gallon, largely due to acquisitions. Excluding acquisitions, home heating oil and propane margins decreased by approximately $0.01 per gallon. A decline in the protected price margins drove the overall decrease in per gallon margins in the base business. This was in contrast to last year when the company benefited from declining cost of product, which favorably impact margins. Delivery and branch expense increased by $16 million or 23% to $83 million during the quarter, partly due to acquisitions, which accounted for $6 million of the increase. In the base business, expenses rose by $10 million or 15%. However, it's worth noting that home heating oil and propane volumes rose by 23% in the base business, exceeding the increase in expense of 15%. Generally, delivery and branch expenses rose largely due to higher sales volumes, and higher prices and volume sales drove an increase in bad debt expense and credit card fees. The extremely cold weather conditions experienced during the - earlier during the fiscal 2018 was a driver of an increase in insurance expense. In addition, our fixed costs also rose as we invested in customer service, sales, operations and IT. The net loss for the quarter was $8 million or $5 million…

Thanks, Rich. And at this time, we'll be pleased to address any questions you may have. Operator, please open the phone lines for questions.

[Operator Instructions] The first question will come from Andrew Gadlin of Odeon Capital Group. Please go ahead.

Hey, good morning, guys.

Good morning, Andrew.

I wanted to start by asking about the attrition this quarter. Steve, you've spoken about this on a number of occasions since the crazy winter started. And when you think about this attrition that you're facing now, given that it's tied to a specific event, how long do you think this lasts for? Because you're not the only one facing the attrition. Your competitors are too. I just want to know, as everybody's facing heightened churn, what's your outlook for how many months or seasons this will go for?

It's not multiple years. It's always just - really, I - we look at these events kind of 1 year at a time. That's typically the length of memory elasticity home owners tend to have, the next winter tends to wash it away. The problem this year is, those events in January but combining that with 2 years of escalating prices, which kind of create very unpredictable patterns of behavior of customers. So we'll continue to see this into September and then we hope that we'll get our share of activity in the churn in the market. Part of the problem though with all this is, because of the higher price, many of these customers will not recommit to a full-serve competitor. Those typically stay kind of floating around, getting COD deliveries for a while and take their time, and that's why, you don't see an immediate offset. And it's not net neutral like we're getting reciprocal amount of - or more of our competitors' customers who're suffering equal or worse situations during the winter, we know they did. But a lot of customers, they just - they get disgusted between difficult services and really significantly higher prices from just 1 year ago. Where - that's really where our focus is every day. Right now, managing the changing price with each customer, as the opportunity comes up, to have that discussion and trying to guide them through that and retain them. And it's a difficult period of time for us every 4, 5 years, we seem to go through this. So we're well practiced in it.

Got it. And then, are there new entrants coming into the market?

Not really. We have not seen anybody of notable strength. Every once in a while, you'll see a very small entity poke its nose up somewhere very locally, but it's very difficult to walk away like this with the high cost of product. It's a real inhibitor. That's - there is an - a positive to high cost of oil price, it's that. It's more difficult for a small person to go into this market, and there's - while there are other players, that from time to time will either accumulate another company that comes for sale or a known player slightly shifting the geography, we don't really see any significant change in the landscape that would be disadvantageous to us.

And the new acquisitions, can you tell us a little bit about their book of business? Do they lean more towards propane, other products, et cetera, similar to your existing business? And the new acquisitions, can you tell us a little bit about their book of business? Do they lean more towards propane, other products, et cetera, similar to your existing business?

So one is pretty similar to our existing business in an area where we serve. And it's actually a piece of some business that, years ago, we had tried to buy and someone else gotten then. So we got a chance to buy it later on when they chose to sell it off. It's heating oil primarily, and it's not propane at all. And it has kind of all standard mix of related service. So we like that. Actually, this service has really been as well developed and exploited as we would. So we're not unhappy about potential synergies down the road, but the opportunity to grow service revenues in that business. That's Pennsylvania for the most part. And then the other business we bought as - it's a much more commercial business. It has a lot of diesel. But it...

Is it the Georgia business?

No, this business is in New Jersey. We did not - we bought a business in Pennsylvania, one in New Jersey in this quarter. So the - that commercial business, it's kind of - again, it matches up with some other businesses that we'd bought when we purchased the Griffith company. And they know the Griffith's management team knew this business pretty well. They knew the principles. They understood the customer base and the profitability, and we now only see it matching up very well with a piece of what Griffith already does, but we see further opportunities and some, down the road, synergies. So we're pretty happy with both the acquisitions.

And multiples in line with your historical?

Yeah, we've been - and that's another thing, we've - I think we've stayed pretty principled in our discipline to multiples in a market that's, for whatever reasons, gotten pretty frothy on the edges, and we've been staying pretty clear of that mess.

Thank you very much.

[Operator Instructions] The next question will come from Ed Osann from [indiscernible] Retail. Thank You.

Yeah, guys, could you break out the increase in propane?

The increase in propane, were you...

Yeah. What was the increase in propane year-over-year? You lumped it into heating oil, but breaking out propane, what did that do by itself?

You mean from a revenue standpoint? Volume?

Yeah. Volume, yeah, both.

Okay. We don't - well, we don't really disclose the difference between the increase in heating oil and propane. Heating oil is still 80%, 85% of our business and propane is maybe 10%, 15%. We don't really break out that change in volume of propane versus heating oil.

Yeah, but that's the real driver. And what - let me put it this way, were you satisfied with the growth in propane?

Let me say, there's couple things that, one, propane isn't driving the business right now. It's - I will say that the profitability of it is growing and improving, but it's - to Rich's point, it still has a real minimal contribution on a net profit basis. But - and we are very happy with the growth of propane in most areas that we're operating. There are couple areas where the weather patterns have been different and some of the conditions to expand our presence have not been as great as we had originally anticipated, and some of those are on the - in the new markets. Again, while they are growing, they're not growing as well as we would like. But I would - we remain very positive on the - our aspects of how propane is continuing in the last few years and how it's helping our business improve. Rich, do you have something?

Yeah. Our heating oil volume on the base business was up about 19.5 million gallons and the propane was up about 3 million gallons. So about 19%.

Okay. That's good. What - how many shares did you buy back in the quarter? And how much is left? And do you think that there is a chance of increase in that amount?

Well, under the public plan, currently, there's about 600,000 units to be left to be bought back, and I'll give you, a second, what we bought back in the quarter. In the quarter, we bought back 1.1 million shares.

I'm sorry?

Well, we bought back 1.1 million shares in the quarter.

Okay. As you get to the end of that with the 600,000, do you see adding to that?

It's possible. I mean, yes, we evaluate from time to time how we want to allocate our top - allocate our capital.

Okay. And I got - both of those sound good. And what about the dividend? Will - do you - given the conditions are correct, would you continue to increase the dividend?

That's a decision that our board makes each and every year for the - I guess, it's the May distribution after the first 6 months of the year. So we'll have to see the results for the year depending on how the weather is.

No, given that the results are okay, do you see that program continuing in the future, obviously subject to the board's decisions, but if everything...

We're just not going to comment on future increases in distributions. But as - what I'd say is to that, while we won't say what we will do, I guess, a lot of it depends on what the - how well we can continue to have the business perform and execute as we have, and if it - as it does, then we will make probably some more considerations. And that's - I mean, if you look back at what we've done and how we've done it, we remain very consistent.

No, no, I agree. And I once asked you, was there a maximum on the dividend, and your answer was no. And you've continued to - and you continued to do that, and that's great.

We have not set any kind of limitations for either the growth of the business or how we will share that with investors in the way that we target in the future. We have no limitations. And we - but at the same time, we have no promise we're making either.

No, I know, but you exceeded the amount that I think somewhat - at least I was concerned about it. And you came through and did it. And my view as an investor is that you're going to continue the dividend policy subject to results.

Yeah, that would be a fair assumption.

Thank you.

Welcome.

[Operator Instructions] There appears to be no further questions in the question queue. So I'd like to turn the conference back over to Steve Goldman for any closing remarks.

Okay. Thank you, Carrie. Thank you for taking the time with us today and for your ongoing interest in Star Group. We look forward to sharing our 2018 fiscal year-end results with you in December.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.