10-Q: Star Group Reports Strong 9-Month Earnings Amid Acquisitions

Star Group, L.P. reported a significant increase in net income and Adjusted EBITDA for the nine months ended June 30, 2025, driven by colder weather and strategic acquisitions, despite a net loss in the third quarter.

Summary

• Net income for the nine months ended June 30, 2025, increased by $31.9 million to $102.2 million, compared to $70.3 million in the prior year.
• Adjusted EBITDA for the nine months ended June 30, 2025, rose by $28.2 million to $169.5 million, up from $141.3 million in the previous year.
• Retail volume of home heating oil and propane sold increased by 11.8% to 262.6 million gallons for the nine months, primarily due to colder temperatures and acquisitions.
• Installation and service revenue increased by 9.9% to $256.0 million for the nine months, with $18.4 million generated from recent acquisitions.
• The company acquired one heating oil and three propane businesses for approximately $80.5 million in cash during the nine months ended June 30, 2025.
• For the three months ended June 30, 2025, the company reported a net loss of $16.6 million, an increase from the $11.0 million net loss in the comparable prior-year quarter.
• Adjusted EBITDA loss for the three months ended June 30, 2025, increased to $10.6 million from $4.1 million in the prior year.
• The company repurchased 0.8 million Common Units for $10.0 million during the nine months ended June 30, 2025.
• A quarterly distribution of $0.1850 per unit was declared in July 2025, paid on August 6, 2025.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance for the nine-month period, with significant increases in net income and Adjusted EBITDA, driven by favorable weather and strategic acquisitions. While the third quarter showed a net loss, this is typical for the seasonal business. The company is actively managing risks, maintaining liquidity, and pursuing growth through acquisitions and unit repurchases. However, ongoing customer attrition and commodity price volatility remain challenges.

Positives

• Significant increase in net income and Adjusted EBITDA for the nine-month period, reflecting strong performance over the heating season.
• Growth in home heating oil and propane volume (11.8% increase for nine months) driven by colder weather and successful acquisitions.
• Improved home heating oil and propane per gallon margins (1.6% increase for nine months).
• Strong growth in installation and service revenue (9.9% increase for nine months), partly due to acquisitions and efforts to expand offerings.
• Strategic acquisitions of four businesses for $80.5 million, contributing positively to Adjusted EBITDA.
• Effective use of interest rate swaps, hedging approximately 39% of variable-rate long-term debt, mitigating interest rate risk.
• Maintained compliance with all financial covenants under the credit agreement, with $167.6 million in availability.
• Ongoing unit repurchase program, demonstrating commitment to returning capital to unitholders.
• Sale of a New Jersey operating location for $4.9 million, realizing a gain on an asset with a carrying value of $1.0 million.

Negatives

• Increased net loss for the three months ended June 30, 2025, rising to $16.6 million from $11.0 million in the prior-year quarter.
• Higher Adjusted EBITDA loss for the three months ended June 30, 2025, increasing to $10.6 million from $4.1 million.
• Decrease in retail volume of home heating oil and propane sold by 3.8% for the three months ended June 30, 2025, partly due to warmer temperatures compared to the prior Q3.
• Decrease in home heating oil and propane per gallon margins for the three months ended June 30, 2025, by 2.4%.
• Cash provided by operating activities decreased by $15.9 million for the nine months, primarily due to increased accounts receivable and higher cash use for inventory purchases.
• Increased cash used in investing activities ($99.5 million vs. $31.2 million) primarily due to higher acquisition spending.
• Increased interest expense for both the three and nine-month periods due to higher average borrowings.
• Weather hedge contracts resulted in a $3.1 million expense for fiscal 2025 due to colder temperatures, contrasting with a $7.5 million credit in the prior year due to warmer weather.
• Net customer attrition of 13,000 accounts (3.1%) for the nine months ended June 30, 2025, consistent with the prior year.

Risks

• Volatility in wholesale prices of liquid products (home heating oil, propane, motor fuels) can lead to customer conservation and increased gross customer losses, especially when prices rise.
• Actual weather conditions may vary substantially from year to year, significantly affecting demand for heating products and financial performance.
• Ongoing net customer attrition is influenced by factors such as price competition, move-outs, credit losses, and conversions to natural gas and electric heating systems.
• New U.S. tariffs and potential reciprocal tariffs may affect the cost and availability of assets (e.g., trucks) and products/services, potentially contributing to inflation.
• Increases in state law minimum biofuel blending requirements (e.g., New York, Connecticut, Rhode Island) could impact the cost of home heating oil.
• Non-cash gains and losses on derivative instruments can cause significant earnings volatility, although they are ultimately expected to be offset by the cost of product when purchased.
• The ability to collect current and future accounts receivable impacts liquidity, and if balances do not meet eligibility tests, borrowing capacity may be reduced.
• The ultimate resolution of self-insurance liabilities (workers' compensation, auto, general liability, medical claims) could differ materially from current estimates, impacting results of operations.
• Exposure to interest rate risk primarily through variable-rate bank credit facilities, despite partial mitigation through interest rate swaps.
• The company's insurance policies may not be adequate to protect it from all material expenses related to current and potential future claims, legal proceedings, and litigation.

Future Outlook

The company expects capital requirements to be met by cash flows from operating activities and cash on hand in the near term, supplemented by the revolving credit facility and seasonal reductions in inventory and accounts receivable if needed. Maintenance capital expenditures for the remainder of fiscal 2025 are estimated at $2.0 million to $3.0 million, with an additional $0.1 million to $0.2 million planned for propane operations. The company intends to continue its unit repurchase plan and pursue attractive acquisition opportunities, subject to credit facility constraints. The 'One Big Beautiful Bill Act' signed July 4, 2025, will impact corporate taxation, but its full effects on the estimated annual effective tax rate and cash tax position are still being evaluated. New biofuel blending requirements effective July 1, 2025, may impact costs.

Management Comments

• "The results of operations and cash flows for the nine-month period ended June 30, 2025 are not necessarily indicative of the results to be expected for the full year due to the seasonal nature of the Company's business."
• "We believe home heating oil and propane margins should be evaluated on a cents per gallon basis before the effects of increases or decreases in the fair value of derivative instruments, as we believe that such per gallon margins are best at showing profit trends in the underlying business without the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction."
• "Going forward, we cannot assume that per gallon margins realized during the three months ended June 30, 2025 are sustainable especially with the volatility in heating oil and propane costs."
• "We believe that investments into the irrevocable trust [captive insurance collateral] lower our letter of credit fees, increase interest income on invested cash balances, and provide us with certain tax advantages attributable to a captive insurance company."
• "We believe that these cash sources [operating activities, cash on hand] will also be sufficient to satisfy our capital requirements in the longer-term."
• "We intend to continue to repurchase Common Units pursuant to our unit repurchase plan, as amended from time to time, and seek attractive acquisition opportunities within the Availability constraints of our revolving credit facility and funding resources."
• The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, at a reasonable level of assurance.

Industry Context

The company operates in the highly seasonal home heating oil and propane distribution industry, with peak sales in the winter months (first and second fiscal quarters). Demand is significantly impacted by weather conditions, with colder temperatures generally leading to higher sales volumes. The industry also faces ongoing challenges from customer conversions to natural gas and electricity, as well as volatility in wholesale energy prices. Regulatory changes, such as increased biofuel blending requirements, are also influencing operational costs and market dynamics. The company's strategy includes mitigating weather risk through hedge contracts and managing commodity price risk with derivatives.

Comparison to Industry Standards

• No specific comparable companies, projects, or global benchmarks are mentioned in the filing for direct comparison to industry standards.

Legal Proceedings

• The company is a defendant in various legal proceedings and litigation in the ordinary course of business.
• Management believes these matters, individually or in aggregate, are not reasonably expected to have a material adverse effect on results of operations, financial position, or liquidity.

Stakeholder Impact

• Shareholders (Unitholders) benefit from increased net income and Adjusted EBITDA for the nine-month period, continued quarterly distributions ($0.1850/unit), and an ongoing unit repurchase program which can enhance per-unit value.
• Employees benefit from a profit sharing plan, with accruals based on Adjusted EBITDA levels.
• Customers may be impacted by commodity price volatility and potential cost changes due to tariffs and biofuel blending requirements, while also benefiting from expanded service and installation offerings.
• Creditors are positively impacted by the company's compliance with financial covenants and strong liquidity position.
• Suppliers may face impacts from tariffs on the costs of goods, such as trucks and products.

Next Steps

• Evaluate the full effects of the 'One Big Beautiful Bill Act' on estimated annual effective tax rate and cash tax position.
• Monitor the impact of increased biofuel blending requirements effective July 1, 2025, on costs.
• Continue unit repurchases under the Repurchase Plan.
• Seek attractive acquisition opportunities.
• Make quarterly term loan payments of $5.3 million for the remainder of fiscal 2025.
• Continue to evaluate the impact of new accounting standards (ASU 2023-07, 2023-09, 2024-03/2025-01) on consolidated financial statements and disclosures.

Key Dates

Recommendation

Star Group, L.P. demonstrated robust financial performance for the nine-month period, with substantial growth in net income and Adjusted EBITDA, driven by favorable weather conditions and successful strategic acquisitions. The company's ability to expand its installation and service revenue, coupled with effective management of commodity price and interest rate risks through hedging, indicates operational resilience. While the third quarter showed a seasonal loss, the overall year-to-date trend is strong. The ongoing unit repurchase program and consistent distributions signal a commitment to shareholder value. The company maintains healthy liquidity and compliance with debt covenants, providing a solid financial foundation for continued growth and acquisition opportunities.

Keywords

Home Heating Oil, Propane, Energy Distribution, Fuel Delivery, HVAC Services, Quarterly Report, Financial Results, Acquisitions, Unit Repurchase, Commodity Prices, Weather Impact, Customer Attrition, Risk Management, Corporate Finance