Star Group, L.P.: Form 10-Q for the period ended Mar 31, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Disclosure

This Quarterly Report on Form 10-Q (this “Report”) includes “forward-looking statements” which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including the impact of geopolitical events on wholesale product cost volatility, tariff regimes, including newly imposed U.S. tariffs and any additional responsive non-U.S. tariffs or additional U.S. tariffs, the price and supply of the products that we sell, our ability to purchase sufficient quantities of product to meet our customer’s needs, rapid increases in levels of inflation, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, the effect of weather conditions on our operational and financial performance, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, natural gas conversions and electrification of heating systems, future global health pandemics, recessionary economic conditions, future union relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including climate change, environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness, marketing plans, cyber-attacks, global supply chain issues, labor shortages and new technology, including alternative methods for heating and cooling residences. All statements other than statements of historical facts included in this Report including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are forward-looking statements. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct, and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth in this Report under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Fiscal 2024 Form 10-K under Part I Item 1A “Risk Factors.” Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Report and in our Fiscal 2024 Form 10-K. 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, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Report.

Liquid Product Price Volatility

Volatility, which is reflected in the wholesale price of liquid products, including home heating oil, propane and motor fuels, has a larger impact on our business when prices rise. Home heating oil consumers are sensitive to heating cost increases, and this often leads to customer conservation and increased gross customer losses. As a commodity, the price of home heating oil is generally impacted by many factors, including economic and geopolitical forces, tariff regimes and is closely linked to the price of diesel fuel. The volatility in the wholesale cost of diesel fuel as measured by the New York Mercantile Exchange (“NYMEX”), for the fiscal years ending September 30, 2021, through 2025, on a quarterly basis, is illustrated in the following chart (price per gallon):

(a) On April 30, 2025, the NYMEX ultra low sulfur diesel contract closed at $2.04 per gallon.

Income Taxes

Book versus Tax Deductions

The amount of cash flow generated in any given year depends upon a variety of factors including the amount of cash income taxes required, which will increase as depreciation and amortization decreases. The amount of depreciation and amortization that we deduct for book (i.e., financial reporting) purposes will differ from the amount that the Company can deduct for Federal tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that we expect to deduct for Federal tax purposes, based on currently owned assets. While we file our tax returns based on a calendar year, the amounts below are based on our September 30 fiscal year, and the tax amounts include any bonus depreciation available for fixed assets purchased. However, this table does not include any forecast of future annual capital purchases.

Estimated Depreciation and Amortization Expense

Weather Hedge Contracts

Weather conditions have a significant impact on the demand for home heating oil and propane because certain customers depend on these products principally for space heating purposes. Actual weather conditions may vary substantially from year to year, significantly affecting the Company’s financial performance. To partially mitigate the adverse effect of warm weather on cash flow, we have used weather hedging contracts for a number of years with several providers.

The Company entered into weather hedge contracts for fiscal year 2025 and 2024. The hedge period runs from November 1 through March 31, taken as a whole. The “Payment Thresholds,” or strikes, are set at various levels and are referenced against degree days for the prior ten year average. Under these contracts, the maximum amount the Company can receive is $15.0 million for fiscal 2025 and $12.5 million for fiscal 2024. For the contracts applicable to fiscal 2025, we are additionally obligated to make an annual payment capped at $5.0 million if degree days exceed the Payment Threshold. This obligation did not exist under the contract applicable for 2024.

The temperatures experienced during the hedge period through March 31, 2025 were colder than the strikes in the weather hedge contracts. As a result at March 31, 2025, we increased delivery and branch expense and recorded a payable under those weather hedge contracts of $3.1 million, and paid the amount in full in April 2025. By comparison, the temperatures experienced during the hedge period through March 31, 2024 were warmer than the strike in the weather hedge contract. As of March 31, 2024, we reduced delivery and branch expenses and recorded a receivable of $7.5 million under the weather hedge contract, and received the amount in full in April 2024.

For fiscal 2026, the Company entered into weather hedge contracts with the similar hedge period described above. The maximum that the Company can receive is $15.0 million annually and we are obligated to make an annual payment capped at $5.0 million if degree days exceed the Payment Threshold.

Tariffs

In April 2025, the U.S. government announced a baseline tariff of 10% on products imported from all countries and an additional individualized reciprocal tariff on some countries, including Canada and China. Current uncertainties about tariffs and their effects on trading relationships may affect the cost and availability of the Company's assets, such as trucks, and potentially the products and services we sell as well as potentially contribute to inflation in the markets in which we operate. Although we are continuing to monitor the economic effects of such announcements, as well as opportunities to mitigate their related impacts, costs and other effects associated with the tariffs remain uncertain.

Increases in State Law Minimum Biofuel Blending Requirements

Commencing July 1, 2025, we and our home heating oil competitors will become subject to an increase from the current level of 5% to 10% in the minimum percentage of biodiesel that is required be blended with home heating oil sold for heating purposes in buildings located in the States of New York and Connecticut (where a significant portion of our customers are located), and an increase from the current level of 10% to 20% in the minimum percentage of biodiesel that is required be blended with home heating oil sold for heating purposes in buildings in Rhode Island. Depending upon the relationship of home heating oil and biodiesel, these regulations may decrease or increase the cost of home heating oil for Star and our competition in New York, Connecticut or Rhode Island.

Per Gallon Gross Profit Margins

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.

A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing a ceiling price or fixed price for home heating oil over a set period of time, generally twelve to twenty-four months (“price-protected” customers). When these price-protected customers agree to purchase home heating oil from us for the next heating season, we purchase option contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these customers. The amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer per month. In the event that the actual usage exceeds the amount of the hedged volume on a monthly basis, we may be required to obtain additional volume at unfavorable costs. In addition, should actual usage in any month be less than the hedged volume, our hedging costs and losses could be greater, thus reducing expected margins.

Derivatives

FASB ASC 815-10-05 Derivatives and Hedging requires that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent our interest rate derivative instruments designated as cash flow hedges are effective, as defined under this guidance, changes in fair value are recognized in other comprehensive income (loss) until the forecasted hedged item is recognized in earnings. We have elected not to designate our commodity derivative instruments as hedging instruments under this guidance and, as a result, the changes in fair value of the derivative instruments are recognized in our statement of operations. Therefore, we experience volatility in earnings as outstanding derivative instruments are marked to market and non-cash gains and losses are recorded prior to the sale of the commodity to the customer. The volatility in any given period related to unrealized non-cash gains or losses on derivative instruments can be significant to our overall results. However, we ultimately expect those gains and losses to be offset by the cost of product when purchased.

Customer Attrition

We measure net customer attrition on an ongoing basis for our full service residential and commercial home heating oil and propane customers. Net customer attrition is the difference between gross customer losses and customers added through marketing efforts. Customers added through acquisitions are not included in the calculation of gross customer gains. However, additional customers that are obtained through marketing efforts or lost at newly acquired businesses are included in these calculations from the point of closing going forward. Customer attrition percentage calculations include customers added through acquisitions in the denominators of the calculations on a weighted average basis from the closing date. Gross customer losses are the result of a number of factors, including price competition, move-outs, credit losses, natural gas and electric conversions and service disruptions. When a customer moves out of an existing home, we count the “move out” as a loss, and, if we are successful in signing up the new homeowner, the “move in” is treated as a gain. Customers sourced by our alliance partners are included in our home heating oil and propane customer base. Therefore, any changes in the relationships with our alliance partners could impact gross customer gains and losses going forward.

Customer gains and losses of home heating oil and propane customers

24

Customer gains (attrition) as a percentage of home heating oil and propane customer base

For the six months ended March 31, 2025, the Company lost 6,000 accounts (net), or 1.5% of its home heating oil and propane customer base, compared to 5,800 accounts lost (net), or 1.5% of its home heating and oil propane customer base in the prior year comparable period. Gross customer gains were 1,200 accounts less than the prior year's comparable period and gross customer losses were 1,000 accounts less.

During the six months ended March 31, 2025, we estimate that we lost 0.7% of our home heating oil and propane accounts to natural gas and electricity conversions, consistent with the 0.7% and 0.9% lost for the six months ended March 31, 2024 and 2023, respectively. Losses to natural gas and electricity in our footprint for the heating oil and propane industry could be greater or less than the Company’s estimates.

Acquisitions

The timing of acquisitions and the types of products sold by acquired companies impact year-over-year comparisons. During the six months ended March 31, 2025, the Company acquired one heating oil and two propane businesses for approximately $79.6 million. During fiscal 2024, the Company acquired one propane and four heating oil businesses for approximately $49.4 million. The following tables detail the Company’s acquisition activity and the associated volume sold during the 12-month period prior to the date of acquisition.

(in thousands of gallons)

Fiscal 2025 Acquisitions

(in thousands of gallons)

Fiscal 2024 Acquisitions

Protected Price Account Renewals

A substantial majority of the Company’s price-protected customers have agreements with us that are subject to annual renewal in the period between April and November of each fiscal year. If a significant number of these customers elect not to renew their price-protected agreements with us and do not continue as our customers under a variable price-plan, the Company’s near term profitability, liquidity and cash flow will be adversely impacted.

Seasonality

The Company’s fiscal year ends on September 30. All references to quarters and years, respectively, in this document are to the fiscal quarters and fiscal years unless otherwise noted. The seasonal nature of our business has resulted, on average, during the last five years, in the sale of approximately 30% of the volume of home heating oil and propane in the first fiscal quarter and 50% of the volume in the second fiscal quarter, the peak heating season. Approximately 25% of the volume of motor fuel and other petroleum products is sold in each of the four fiscal quarters. We generally realize net income during the quarters ending December and March and net losses during the quarters ending June and September. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.

Degree Day

A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average daily temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service.

Every ten years, the National Oceanic and Atmospheric Administration (“NOAA”) computes and publishes average meteorological statistics, including the average temperature for the last 30 years by geographical location, and the corresponding degree days. The latest and most widely used data covers the years from 1991 to 2020. Our calculations of “normal” weather are based on these published 30 year averages for heating degree days, weighted by volume for the locations where we have existing operations.

Consolidated Results of Operations

The following is a discussion of the consolidated results of operations of the Company and its subsidiaries and should be read in conjunction with the historical financial and operating data and Notes thereto included elsewhere in this Quarterly Report.

Three Months Ended March 31, 2025

Compared to the Three Months Ended March 31, 2024

Volume

For the three months ended March 31, 2025, retail volume of home heating oil and propane sold increased by 26.8 million gallons, or 22.9%, to 143.9 million gallons, compared to 117.1 million gallons for the three months ended March 31, 2024. For those locations where we had existing operations during both periods, which we sometimes refer to as our “base business” (i.e., excluding acquisitions), temperatures (measured on a heating degree day basis) for the three months ended March 31, 2025 were 12.9% colder than the three months ended March 31, 2024 and 4.5% warmer than normal, as reported by NOAA. For the twelve months ended March 31, 2025, net customer attrition for the base business was 4.2%. The impact of fuel conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the retail volume of home heating oil and propane, which is based on management’s estimates, sampling, and other mathematical calculations and certain assumptions, is found below:

(in millions of gallons)

The following chart sets forth the percentage by volume of total home heating oil sold to residential variable-price customers, residential price-protected customers and commercial/industrial/other customers for the three months ended March 31, 2025, compared to the three months ended March 31, 2024:

Volume of motor fuel and other petroleum products sold decreased by 1.3 million gallons, or 4.3%, to 28.9 million gallons for the three months ended March 31, 2025, compared to 30.2 million gallons for the three months ended March 31, 2024.

Product Sales

For the three months ended March 31, 2025, product sales increased by $69.8 million, or 11.7%, to $665.1 million, compared to $595.3 million for the three months ended March 31, 2024, due to an increase in total volume sold of 17.3% and slightly offset by a decrease in wholesale product cost of $0.2887 per gallon, or 10.9%. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.

Installations and Service

For the three months ended March 31, 2025, installation and service revenue increased by $7.2 million, or 10.2%, to $77.9 million, compared to $70.7 million for the three months ended March 31, 2024 driven by $5.8 million of sales generated from recent acquisitions and the remainder was driven by a concerted effort to expand these offerings to our customers as well as annual price increases.

Cost of Product

For the three months ended March 31, 2025, cost of product increased $17.5 million, or 4.5%, to $406.9 million, compared to $389.4 million for the three months ended March 31, 2024, due to an increase in total volume sold of 17.3% and slightly offset by a decrease in wholesale product cost of $0.2887 per gallon, or 10.9%. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.

Gross Profit — Product

The table below calculates our per gallon margins and reconciles product gross profit for home heating oil and propane and motor fuel and other petroleum products. We believe the change in home heating oil and propane margins should be evaluated before the effects of increases or decreases in the fair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before the settlement of the underlying transactions. On that basis, home heating oil and propane margins for the three months ended March 31, 2025 increased by $0.0427 per gallon, or 2.5%, to $1.7195 per gallon, from $1.6768 per gallon during the three months ended March 31, 2024. In the base business, home heating and propane margins for the three months ended March 31, 2025 increased by $0.0738 per gallon, or 4.4% to $1.7506 per gallon. Going forward, we cannot assume that per gallon margins realized during the three months ended March 31, 2025 are sustainable especially with the volatility in heating oil and propane costs. Product sales and cost of product include home heating oil, propane, other petroleum products and liquidated damages billings.

For the three months ended March 31, 2025, total product gross profit was $258.2 million, which was $52.3 million, or 25.4%, higher than the three months ended March 31, 2024, due to an increase in home heating oil and propane volume sold ($45.0 million), increase in home heating oil and propane margins ($6.1 million) and an increase in gross profit from other petroleum products ($1.2 million).

Cost of Installations and Service

Total installation costs for the three months ended March 31, 2025 increased by $2.6 million or 11.8%, to $24.3 million, compared to $21.7 million of installation costs for the three months ended March 31, 2024. This increase was largely due to higher installation sales from recent acquisitions. Installation costs as a percentage of installation sales were 84.2% for the three months ended March 31, 2025 and 82.9% for the three months ended March 31, 2024. The gross profit from installation increased by $0.1 million.

Service expense increased by $3.1 million, or 6.3%, to $51.9 million for the three months ended March 31, 2025, representing 105.8% of service sales, versus $48.8 million, or 109.7% of service sales, for the three months ended March 31, 2024. This increase was largely due to higher service sales from recent acquisitions. In addition, a large proportion of our service expenses are incurred under fixed-fee prepaid service contract arrangements, therefore trends in service expenses may not directly correlate to trends in the related revenues. The gross loss from service decreased by $1.5 million.

We realized a combined gross profit from service and installation of $1.7 million for the three months ended March 31, 2025 compared to a gross profit of $0.1 million for the three months ended March 31, 2024, a $1.6 million increase.

(Increase) Decrease in the Fair Value of Derivative Instruments

During the three months ended March 31, 2025, the change in the fair value of derivative instruments resulted in a $6.1 million credit as a decrease in the market value for unexpired hedges (a $2.1 million charge) was more than offset by an $8.2 million credit due to the expiration of certain hedged positions.

During the three months ended March 31, 2024, the change in the fair value of derivative instruments resulted in an $11.8 million credit due to an increase in the market value for unexpired hedges (a $0.7 million credit) and an $11.1 million credit due to the expiration of certain hedged positions.

Delivery and Branch Expenses

For the three months ended March 31, 2025, delivery and branch expense increased $20.8 million, or 20.0%, to $124.9 million, compared to $104.1 million for the three months ended March 31, 2024. During the quarter ended March 31, 2025, the Company's weather hedge contracts accounted for an increase in expense of $9.6 million. The temperatures experienced during the second quarter of fiscal 2025 were colder than the strike prices and, therefore, the Company recorded an expense under those weather hedge contracts of $3.1 million. This compares to the prior-year period which, due to warmer weather, the Company recorded a benefit of $6.5 million under its weather hedge contract. The increase was also driven by $7.5 million of expenses from recent acquisitions and a $3.7 million increase in net base business expenses. The increase in the base business expenses was driven by a $3.2 million, or 4.9%, increase in delivery expenses due to a 13.2 million gallon, or 11.2%, increase in home heating oil and propane volume sold in the base business.

Depreciation and Amortization Expenses

For the three months ended March 31, 2025, depreciation and amortization expenses increased $1.2 million, or 15.0%, to $8.9 million, compared to $7.7 million for the three months ended March 31, 2024, primarily due to acquisitions and slightly offset by intangible assets that fully amortized in the prior fiscal year.

General and Administrative Expenses

For the three months ended March 31, 2025, general and administrative expenses increased by $1.3 million or 18.9%, to $8.2 million, from $6.9 million for the three months ended March 31, 2024, due to a $1.2 million increase in profit sharing expense and $0.1 million of other net expense increases. The Company accrues approximately 6.0% of Adjusted EBITDA as defined in its profit sharing plan for distribution to its employees. This amount is payable when the Company achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit sharing pool adjusts accordingly based on Adjusted EBITDA levels achieved.

Finance Charge Income

For the three months ended March 31, 2025, finance charge income was $1.4 million, essentially unchanged from the three months ended March 31, 2024.

Interest Expense, Net

For the three months ended March 31, 2025, net interest expense increased by $0.7 million, or 16.3%, to $4.5 million compared to $3.8 million for the three months ended March 31, 2024. The year-over-year change was driven by an increase in average borrowings of $60.1 million from $200.8 million for the three months ended March 31, 2024 to $260.9 million for the three months ended March 31, 2025 that was partially offset by a decrease in the weighted average interest rate from 7.1% for the three months ended March 31, 2024 to 6.8% for the three months ended March 31, 2025. To hedge against rising interest rates, the Company utilizes interest rate swaps. At March 31, 2025, approximately 38% of borrowings under Star's variable-rate long term debt were not subject to interest rate increases as a result of interest rate swaps.

Amortization of Debt Issuance Costs

For the three months ended March 31, 2025, amortization of debt issuance cost was $0.2 million, essentially unchanged from the three months ended March 31, 2024.

Income Tax Expense

For the three months ended March 31, 2025, the Company’s income tax expense increased by $6.9 million to $34.8 million, from $27.9 million for the three months ended March 31, 2024. The increase in the income tax expense was driven by a $24.4 million increase in income before income taxes.

Net Income

For the three months ended March 31, 2025, Star’s net income increased $17.5 million, to $85.9 million, compared to the three months ended March 31, 2024, primarily due to a $31.9 million increase in Adjusted EBITDA that was partially offset by a $6.9 million increase in income tax expense, an unfavorable change in the fair value of derivative instruments of $5.7 million, a $1.2 million increase in depreciation and amortization expenses and a $0.7 million increase in net interest expense.

Adjusted EBITDA

For the three months ended March 31, 2025, Adjusted EBITDA increased $31.9 million, to $128.2 million, compared to the three months ended March 31, 2024, due to an increase in Adjusted EBITDA from recent acquisitions, an increase in home heating oil and propane per gallon margins in the base business, higher home heating oil and propane volume sold in the base business due to colder weather and an improvement in service and installation profitability.

EBITDA and Adjusted EBITDA should not be considered as an alternative to net income, as an indicator of operating performance, or as an alternative to cash flow, as a measure of liquidity or ability to service debt obligations, but provides additional information for evaluating the Company’s ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:

(in thousands)

(a) EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, other income (loss), net, multiemployer pension plan withdrawal charge, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess:

• our compliance with certain financial covenants included in our debt agreements;
• our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;
• our operating performance and return on invested capital compared to those of other companies in the retail distribution of refined petroleum products, without regard to financing methods and capital structure;
• our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; and
• the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.

The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have limitations as analytical tools and so should not be viewed in isolation but in conjunction with measurements that are computed in accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:

• EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures.
• Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;
• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;
• EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.

Six Months Ended March 31, 2025

Compared to the Six Months Ended March 31, 2024

Volume

For the six months ended March 31, 2025, retail volume of home heating oil and propane sold increased by 29.0 million gallons, or 14.7%, to 226.3 million gallons, compared to 197.3 million gallons for the six months ended March 31, 2024. For those locations where we had existing operations during both periods, which we sometimes refer to as our “base business” (i.e., excluding acquisitions), temperatures (measured on a heating degree day basis) for the six months ended March 31, 2025 were 9.4% colder than the six months ended March 31, 2024 and 6.8% warmer than normal, as reported by NOAA. For the twelve months ended March 31, 2025, net customer attrition for the base business was 4.2%. The impact of fuel conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the retail volume of home heating oil and propane, which is based on management’s estimates, sampling, and other mathematical calculations and certain assumptions, is found below:

(in millions of gallons)

The following chart sets forth the percentage by volume of total home heating oil sold to residential variable-price customers, residential price-protected customers and commercial/industrial/other customers for the six months ended March 31, 2025, compared to the six months ended March 31, 2024:

Volume of motor fuel and other petroleum products sold decreased by 2.9 million gallons, or 4.8%, to 59.6 million gallons for the six months ended March 31, 2025, compared to 62.5 million gallons for the six months ended March 31, 2024.

Product Sales

For the six months ended March 31, 2025, product sales increased by $20.8 million, or 2.0%, to $1,064.6 million, compared to $1,043.8 million for the six months ended March 31, 2024, due to an increase in total volume sold of 10.0% and slightly offset by a decrease in average selling prices. Selling prices decreased largely due to a decrease in wholesale product cost of $0.3730 per gallon, or 14.0%, compared to the six months ended March 31, 2024. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.

Installations and Service

For the six months ended March 31, 2025, installation and service revenue increased by $16.2 million, or 10.8%, to $166.5 million, compared to $150.3 million for the six months ended March 31, 2024 driven by $12.0 million of sales generated from recent acquisitions and the remainder was driven by a concerted effort to expand these offerings to our customers as well as annual price increases.

Cost of Product

For the six months ended March 31, 2025, cost of product decreased $37.1 million, or 5.4%, to $655.6 million, compared to $692.7 million for the six months ended March 31, 2024, due to a decrease in wholesale product cost of $0.3730 per gallon, or 14.0%, slightly offset by an increase in total volume sold of 10.0%. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.

Gross Profit — Product

The table below calculates our per gallon margins and reconciles product gross profit for home heating oil and propane and motor fuel and other petroleum products. We believe the change in home heating oil and propane margins should be evaluated before the effects of increases or decreases in the fair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before the settlement of the underlying transactions. On that basis, home heating oil and propane margins for the six months ended March 31, 2025 increased by $0.0374 per gallon, or 2.2%, to $1.7138 per gallon, from $1.6764 per gallon during the six months ended March 31, 2024. In the base business, home heating and propane margins for the six months ended March 31, 2025 increased by $0.0679 per gallon, or 4.0% to $1.7443 per gallon. Going forward, we cannot assume that per gallon margins realized during the six months ended March 31, 2025 are sustainable especially with the volatility in heating oil and propane costs. Product sales and cost of product include home heating oil, propane, other petroleum products and liquidated damages billings.

For the six months ended March 31, 2025, total product gross profit was $408.9 million, which was $57.8 million, or 16.5%, higher than the six months ended March 31, 2024, due to an increase in home heating oil and propane volume sold ($48.7 million), an increase in home heating oil and propane margins ($8.5 million) and an increase in gross profit from other petroleum products ($0.6 million).

Cost of Installations and Service

Total installation costs for the six months ended March 31, 2025 increased by $5.4 million or 10.8%, to $54.6 million, compared to $49.2 million of installation costs for the six months ended March 31, 2024. This increase was largely due to higher installation sales from recent acquisitions. Installation costs as a percentage of installation sales were 81.7% for the six months ended March 31, 2025 and 81.3% for the six months ended March 31, 2024. The gross profit from installation increased by $0.9 million.

Service expense increased by $6.8 million, or 7.1%, to $103.3 million for the six months ended March 31, 2025, representing 103.5% of service sales, versus $96.5 million, or 107.5% of service sales, for the six months ended March 31, 2024. This increase was largely due to higher service sales from recent acquisitions. In addition, a large proportion of our service expenses are incurred under fixed-fee prepaid service contract arrangements, therefore trends in service expenses may not directly correlate to trends in the related revenues. The gross loss from service decreased by $3.2 million.

We realized a combined gross profit from service and installation of $8.7 million for the six months ended March 31, 2025 compared to a gross profit of $4.6 million for the six months ended March 31, 2024, a $4.1 million increase.

(Increase) Decrease in the Fair Value of Derivative Instruments

During the six months ended March 31, 2025, the change in the fair value of derivative instruments resulted in an $11.4 million credit as a decrease in the market value for unexpired hedges (a $2.0 million charge) was more than offset by a $13.4 million credit due to the expiration of certain hedged positions.

During the six months ended March 31, 2024, the change in the fair value of derivative instruments resulted in a $7.3 million charge due to a decrease in the market value for unexpired hedges (a $3.5 million charge) and a $3.8 million charge due to the expiration of certain hedged positions.

Delivery and Branch Expenses

For the six months ended March 31, 2025, delivery and branch expense increased $25.9 million, or 13.0%, to $224.3 million, compared to $198.4 million for the six months ended March 31, 2024. During the six months ended March 31, 2025, the Company's weather hedge contracts accounted for a $10.6 million increase in expense. The temperatures experienced during the second quarter of fiscal 2025 were colder than the strike prices and, therefore, the Company recorded an expense under those weather hedge contracts of $3.1 million. This compares to the prior-year period which, due to warmer weather, the Company recorded a credit of $7.5 million under its weather hedge contract. The increase was also driven by $13.0 million of expenses from recent acquisitions and a $2.3 million increase in net base business expenses. The increase in the base business expenses was driven by a $2.1 million, or 3.2%, increase in delivery expenses due to a 9.4 million gallon, or 4.8%, increase in home heating oil and propane volume sold in the base business compared to the prior year and $2.3 million of other net expense increases that were partially offset by a $2.1 million decrease in insurance related costs.

Depreciation and Amortization Expenses

For the six months ended March 31, 2025, depreciation and amortization expenses increased $0.7 million, or 4.2%, to $16.8 million, compared to $16.1 million for the six months ended March 31, 2024, primarily due acquisitions and slightly offset by intangible assets that fully amortized in the prior fiscal year.

General and Administrative Expenses

For the six months ended March 31, 2025, general and administrative expenses increased by $1.5 million or 10.5%, to $15.4 million, from $13.9 million for the six months ended March 31, 2024, due to a $1.3 million increase in profit sharing expense and $0.2 million of other net expense increases. The Company accrues approximately 6.0% of Adjusted EBITDA as defined in its profit sharing plan for distribution to its employees. This amount is payable when the Company achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit sharing pool adjusts accordingly based on Adjusted EBITDA levels achieved.

Finance Charge Income

For the six months ended March 31, 2025, finance charge income was $2.1 million, essentially unchanged from the six months ended March 31, 2024.

Interest Expense, Net

For the six months ended March 31, 2025, net interest expense increased by $0.4 million, or 5.9%, to $7.5 million compared to $7.1 million for the six months ended March 31, 2024. The year-over-year change was driven by an increase in average borrowings of $56.9 million from $178.6 million for the six months ended March 31, 2024 to $235.5 million for the six months ended March 31, 2025 that was partially offset by a decrease in the weighted average interest rate from 7.2% for the six months ended March 31, 2024 to 7.0% for the six months ended March 31, 2025. To hedge against rising interest rates, the Company utilizes interest rate swaps. At March 31, 2025, approximately 38% of borrowings under Star's variable-rate long term debt were not subject to interest rate increases as a result of interest rate swaps.

Amortization of Debt Issuance Costs

For the six months ended March 31, 2025, amortization of debt issuance cost was $0.5 million, essentially unchanged from the six months ended March 31, 2024.

Income Tax Expense

For the six months ended March 31, 2025, the Company’s income tax expense increased by $14.8 million to $47.8 million, from $33.0 million for the six months ended March 31, 2024. The increase in the income tax expense was driven by a $52.2 million increase in income before income taxes.

Net Income

For the six months ended March 31, 2025, Star’s net income increased $37.4 million, to $118.8 million, compared to the six months ended March 31, 2024, primarily due to a $34.7 million increase in Adjusted EBITDA and a favorable change in the fair value of derivative instruments of $18.6 million that was partially offset by a $14.8 million increase in income tax expense, a $0.7 million increase in depreciation and amortization expenses and a $0.4 million increase in net interest expense.

Adjusted EBITDA

For the six months ended March 31, 2025, Adjusted EBITDA increased $34.7 million, to $180.0 million, compared to the six months ended March 31, 2024, primarily due to an increase in Adjusted EBITDA from recent acquisitions, an increase in home heating oil and propane per gallon margins in the base business, higher home heating oil and propane volume sold in the base business due to colder weather and an improvement in service and installation profitability.

EBITDA and Adjusted EBITDA should not be considered as an alternative to net income, as an indicator of operating performance, or as an alternative to cash flow, as a measure of liquidity or ability to service debt obligations, but provides additional information for evaluating the Company’s ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:

(in thousands)

35

(a) EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, other income (loss), net, multiemployer pension plan withdrawal charge, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess:

• our compliance with certain financial covenants included in our debt agreements;
• our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;
• our operating performance and return on invested capital compared to those of other companies in the retail distribution of refined petroleum products, without regard to financing methods and capital structure;
• our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; and
• the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.

The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have limitations as analytical tools and so should not be viewed in isolation but in conjunction with measurements that are computed in accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:

• EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures.
• Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;
• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;
• EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.

DISCUSSION OF CASH FLOWS

We use the indirect method to prepare our Consolidated Statements of Cash Flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but do not result in actual cash receipts or payment during the period.

Operating Activities

Due to the seasonal nature of our business, cash is generally used in operations during the winter (our first and second fiscal quarters) as we require additional working capital to support the high volume of sales during this period, and cash is generally provided by operating activities during the spring and summer (our third and fourth fiscal quarters) when customer payments exceed the cost of deliveries.

During the six months ended March 31, 2025, cash used in operating activities increased $10.8 million, to $16.0 million, compared to $5.2 million in cash used in operating activities during the six months ended March 31, 2024, as a $43.8 million increase in cash flows from operations and an $11.7 million increase in cash from the timing of accounts payable payments, was more than offset by a $36.8 million increase in accounts receivable due from customers, a $16.7 million greater use of cash for inventory purchases as we entered the 2025 heating season with a lower level of inventory than in fiscal 2024, $6.8 million of additional cash required for collateral and option premiums at derivative counterparties and $6.0 million of other net changes in working capital. The increase in accounts receivable was due to colder weather impacting base business customers and the additional accounts receivable due from acquisition related customers. While accounts receivable increased on an absolute basis, the days sales outstanding were fairly consistent period-on-period (26 days at March 31, 2025 and 27 days at March 31, 2024).

Investing Activities

During the six months ended March 31, 2025, the Company acquired one heating oil and two propane businesses for approximately $79.6 million in cash. The gross purchase price was allocated $37.5 million to intangible assets, $16.8 million to goodwill, $25.2 million to fixed assets and $0.1 million of working capital. The Company also sold certain assets for cash proceeds of $0.3 million.

Our capital expenditures for the six months ended March 31, 2025 totaled $6.5 million, as we invested in computer hardware and software ($0.5 million), refurbished certain physical plants ($0.9 million), expanded our propane operations ($0.8 million) and made additions to our fleet and other equipment ($4.3 million).

During the six months ended March 31, 2025, $1.0 million of earnings were reinvested into an irrevocable trust established in connection with our captive insurance company. The cash deposited into the trust is shown on our balance sheet as captive insurance collateral and, correspondingly, reduced cash on our balance sheet. We believe that investments into the irrevocable trust 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.

During the six months ended March 31, 2024, the Company acquired one propane and three heating oil businesses for an aggregate price of approximately $22.6 million in cash. The gross purchase price was allocated $14.4 million to intangible assets, $6.3 million to goodwill, $2.8 million to fixed assets and reduced by $0.9 million of negative working capital.

Our capital expenditures for the six months ended March 31, 2024 totaled $6.0 million, as we invested in computer hardware and software ($0.9 million), refurbished certain physical plants ($1.3 million), expanded our propane operations ($0.8 million) and made additions to our fleet and other equipment ($3.0 million).

During the six months ended March 31, 2024, $0.9 million of earnings were reinvested into the irrevocable trust.

Financing Activities

During the six months ended March 31, 2025, we repaid $5.3 million of our term loan, borrowed $75.4 million under our revolving credit facility and subsequently repaid $53.0 million, repurchased fewer than 0.1 million Common Units, at an average price paid of $11.24 per unit, for $0.2 million, in connection with our unit repurchase plan, and paid distributions of $12.0 million to our Common Unit holders and $0.7 million to our General Partner unit holders (including $0.7 million of incentive distributions as provided in our Partnership Agreement).

During the six months ended March 31, 2024, we repaid $12.3 million of our term loan, borrowed $79.6 million under our revolving credit facility and subsequently repaid $50.6 million, repurchased approximately 0.2 million Common Units, at an average price paid of $10.92 per unit, for $2.5 million, in connection with our unit repurchase plan, and paid distributions of $11.6 million to our Common Unit holders and $0.7 million to our General Partner unit holders (including $0.6 million of incentive distributions as provided in our Partnership Agreement).

FINANCING AND SOURCES OF LIQUIDITY

Liquidity and Capital Resources Comparatives

Our primary uses of liquidity are to provide funds for our working capital, capital expenditures, distributions on our units, acquisitions and unit repurchases. Our ability to provide funds for such uses depends on our future performance, which will be subject to prevailing economic, financial, geopolitical and business conditions, tariff regimes, weather, the ability to collect current and future accounts receivable, the ability to pass on the full impact of high product costs to customers, the effects of high net customer attrition, conservation, inflation and other factors. Capital requirements, at least in the near term, are expected to be provided by cash flows from operating activities, cash on hand as of March 31, 2025 ($18.5 million) or a combination thereof. We believe that these cash sources will also be sufficient to satisfy our capital requirements in the longer-term. However, if they are not sufficient, we anticipate that working capital will be financed by our revolving credit facility, as discussed below, and from subsequent seasonal reductions in inventory and accounts receivable. As of March 31, 2025, we had accounts receivable of $216.5 million of which $174.1 million is due from residential customers and $42.4 million is due from commercial customers. Our ability to borrow from our bank group is based in part on the aging of these accounts receivables. If these balances do not meet the eligibility tests as defined in our credit agreement, our ability to borrow will be reduced and our anticipated cash flow from operating activities will also be reduced. As of March 31, 2025, we had $22.3 million of borrowings under our revolving credit facility, $199.5 million outstanding under our term loan, $5.2 million in letters of credit outstanding and $3.7 million hedge positions were secured under the credit agreement.

Under the terms of the credit agreement, if Availability (as defined in the credit agreement) is less than the greater of (a) 12.5% of the Line Cap (lesser of the aggregate revolving commitment and the borrowing base) and (b) $35.0 million, we must maintain a fixed charge coverage ratio of 1.10. We are also required to maintain a senior secured leverage ratio that cannot be more than 3.0 as of June 30th or September 30th, and no more than 5.5 as of December 31st or March 31st. As of March 31, 2025, Availability, as defined in the credit agreement, as amended, was $212.6 million and we were in compliance with the financial covenants.

Maintenance capital expenditures for the remainder of fiscal 2025 are estimated to be approximately $6.0 million to $7.0 million, excluding the capital requirements for leased fleet. In addition, we plan to invest $0.4 million to $0.5 million in our propane operations. If, and only to the extent that, cash distributions to our unitholders remain at the current quarterly level of $0.1850 per unit for the balance of fiscal 2025, the Company would make aggregate payments of approximately $12.8 million to Common Unit holders, $0.8 million to our General Partner (including $0.8 million of incentive distribution as provided for in our Partnership Agreement) and $0.8 million to management pursuant to the management incentive compensation plan which provides for certain members of management to receive incentive distributions that would otherwise be payable to the General Partner. The amount of cash distributions payable to our unitholders, if any, depends on the amount of cash flow generated by the Company and our compliance with certain financial covenants under our credit agreement. Under the terms of our credit agreement, our term loan is repayable in quarterly payments of $5.3 million and we expect to pay $10.5 million for the remainder of fiscal 2025. Further, subject to any additional liquidity issues or concerns resulting from wholesale price volatility, 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.

Contractual Obligations and Off-Balance Sheet Arrangements

There has been no material change to Contractual Obligations and Off-Balance Sheet Arrangements since our September 30, 2024 Form 10-K disclosure and therefore, the table has not been included in this Form 10-Q.

Recent Accounting Pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies for discussion regarding the impact of accounting standards that were recently adopted and issued but not yet effective, on our consolidated financial statements.

Critical Accounting Policy and Critical Accounting Estimates

We believe that there have been no significant changes to our critical accounting policy and critical accounting estimates during the six months ended March 31, 2025 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the fiscal year ended September 30, 2024. While our critical accounting policies and estimates have not changed in any significant way during the six months ended March 31, 2025, the following provides disclosures about our critical accounting policy and critical accounting estimates.

Critical Accounting Policy

Fair Values of Derivatives

FASB ASC 815-10-05, Derivatives and Hedging, requires that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. The Company has elected not to designate its commodity derivative instruments as hedging instruments under this guidance, and therefore the change in fair value of those derivative instruments are recognized in our statement of operations.

We have established the fair value of our derivative instruments using estimates determined by our counterparties and subsequently evaluated them internally using established index prices and other sources. These values are based upon, among other things, futures prices, volatility, time-to-maturity value and credit risk. The estimate of fair value we report in our financial statements changes as these estimates are revised to reflect actual results, changes in market conditions, or other factors, many of which are beyond our control.

Critical Accounting Estimates

Self-Insurance Liabilities

We currently self-insure a portion of workers’ compensation, auto, general liability and medical claims. We establish and periodically evaluate self-insurance liabilities based upon expectations as to what our ultimate liability may be for outstanding claims using developmental factors based upon historical claim experience, including frequency, severity, demographic factors and other actuarial assumptions, supplemented with the support of a qualified third-party actuary. As of September 30, 2024, we had approximately $76.7 million of self-insurance liabilities. The ultimate resolution of these claims could differ materially from the assumptions used to calculate the self-insurance liabilities, which could have a material adverse effect on results of operations.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to interest rate risk primarily through our bank credit facilities. We utilize these borrowings to meet our working capital needs.

At March 31, 2025, we had outstanding borrowings totaling $221.8 million that are subject to variable interest rates under our credit agreement, and $76.3 million of interest rate swaps to mitigate exposure to interest rate risk associated with variable interest rates. In the event that interest rates associated with this facility were to increase 100 basis points, the after tax impact on annual future cash flows would be a decrease of $1.0 million.

Commodity Price Risk

We regularly use derivative financial instruments to manage our exposure to commodity price risk related to changes in the current and future market price of home heating oil and vehicle fuels. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Sensitivity analysis is a technique used to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product at March 31, 2025, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $4.1 million from $(1.6) million to a fair market value of $2.5 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $2.3 million to a fair market value of $(3.9) million.

For a broader discussion of risks, including those related to market conditions, please refer to Part I Item 1A "Risk Factors in our Fiscal 2024 Form 10-K.

Controls and Procedures

a) Evaluation of disclosure controls and procedures

The General Partner’s chief executive officer and chief financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of March 31, 2025. Based on that evaluation, such chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025 at the reasonable level of assurance. For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

b) Change in internal control over financial reporting

No changes in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

c) Other

The General Partner and the Company believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a Company have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the chief executive officer and chief financial officer of the General Partner have concluded, as of March 31, 2025, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.

Risk Factors

In addition to the other information set forth in this Report, investors should carefully review and consider the information regarding certain factors, which could materially affect our business, results of operations, financial condition and cash flows set forth in Part I Item 1A. “Risk Factors” in our Fiscal 2024 Form 10-K. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.