Star Group's Q4 2025: Emerging Contradictions on Customer Payment Risks, Churn Trends, and Acquisition Strategies

Date of Call: December 2025

Financials Results

• Revenue: Product gross profit of $525M for fiscal 2025, up 12% YOY; Q4 product gross profit $45M, up 6% YOY
• EPS: Net income of $73.5M for fiscal 2025, up $38.2M YOY; Q4 net loss of $28.7M, $6.4M less than prior year period
• Gross Margin: Product gross profit per gallon margins slightly lower in Q4 and fiscal 2025 due to mix from acquisitions
• Operating Margin: Adjusted EBITDA loss in Q4 increased $3.3M to $33M; Adjusted EBITDA for fiscal 2025 rose $24.8M to $136.4M, up 22.2% YOY

Business Commentary:

• Volume and Weather Impact:
• Star Group's home heating oil and propane volume increased by 1.5 million gallons or 8% in Q4, resulting in a 12% year-over-year increase for the fiscal year.

• The increase was driven by colder temperatures and recent acquisitions, with temperatures being 8% colder than the prior year but 8% warmer than normal.

• Financial Performance and Margin Management:

• The company reported an adjusted EBITDA increase of $24.8 million or 22.2% for the fiscal year.

• This was fueled by higher volumes, disciplined margin management, and recent acquisitions, despite slightly lower per gallon margins.

• Acquisition Strategy:

• Star Group completed 4 acquisitions in fiscal 2025, adding just under 12 million gallons of heating oil and propane volume annually.

• The acquisitions are a key part of the company's strategy to grow and increase shareholder value.

• Customer Attrition and Satisfaction:

• While net customer attrition rose modestly, internal customer satisfaction indicators and loss rates continued to improve, reaching historical lows.

• The increase in attrition was partly due to lower real estate activity and a lack of disruptive weather, which affected new customer additions.

• Operational and Expense Management:

• Delivery, branch, and G&A expenses increased by $5 million in Q4 due to acquisitions and operating costs.
• Despite this, overhead expenses were largely kept in check, contributing to the overall improved bottom line.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'exciting time', 'year-over-year increase in adjusted EBITDA of $24.8 million or 22.2%', 'proud of our talented team', and 'look forward to taking advantage of further opportunities'.

Q&A:

• Question from Tim Mullen (Lyrilton Management): Could you share any thoughts on the regulatory environment, specifically in New York, and its potential impact on Star Gas in the years ahead?
  Response: Management stated it is very difficult to predict the impact as the regulatory environment is still in flux and plans are being determined.

• Question from Michael Prouting (10K Capital): What affected customer attrition in Q4, and what are your thoughts on attrition going forward?
  Response: Attributed lower new customer gains to low prospect activity, lower real estate activity, and warmer-than-normal weather; noted loss rates are at historical lows and satisfaction indicators are improving.

• Question from Michael Prouting (10K Capital): How does the acquisition pipeline look, and will it include any significantly large deals?
  Response: Pipeline remains active with several tuck-in and smaller standalone opportunities under review, but nothing significantly sizable currently.

• Question from Michael Prouting (10K Capital): What drove the lower-than-expected free cash flow in Q4, particularly regarding working capital in receivables and inventory?
  Response: Attributed variance to timing of income taxes and inventory deliveries; noted no significant difference in receivables days sales outstanding versus prior year and no major impact on distributable cash flow.

Contradiction Point 1

Customer Payment Behavior and Credit Risk

This represents a material shift in the assessment of a key financial risk. The narrative changes from portraying a historically stable, low-risk payment environment to implying the need for strategic review due to underlying challenges, which directly impacts forecasts for bad debt, collections, and working capital.

What caused the decline in customer gains and increase in losses in Q4? What are your expectations for attrition trends in the coming year? - Michael Prouting (10K Capital)

20251209-2025 Q4: The company is reviewing its sales and marketing strategies to attract more customers. - Jeffrey Woosnam(CEO)

Have you observed any changes in customer payment ability or payment timeliness? - Timothy Mullen (Laurelton Management)

2025Q2: Historically, the company's bad debt rate has been very low, around 0.5% of sales annually. During cold weather, customers typically pay their heating bills on time. - Richard Ambury(CFO)

Contradiction Point 2

Customer Churn Trends and Outlook

This reveals a contradiction in the characterization of a core business metric (customer retention/growth). The shift from describing losses as "in check" and mentioning a rebound to stating losses are at "historical lows" with an active strategy to attract more customers creates confusion about the true stability and growth trajectory of the business.

What drove the decline in customer gains and increase in losses in Q4? How do you expect attrition trends to develop in the coming year? - Michael Prouting (10K Capital)

20251209-2025 Q4: internally customer satisfaction metrics are improving, loss rates are at historical lows, and churn is lower. The company is reviewing its sales and marketing strategies to attract more customers. - Jeffrey Woosnam(CEO)

Have you noticed any changes in customer churn? - Michael Prouting (10K Capital)

2025Q1: In Q1, customer losses were in check, marking one of the better quarters in years. New customer additions remained sluggish due to relatively warm temperatures... January saw a rebound in new customer additions due to colder weather... - Jeffrey Woosnam(CEO)

Contradiction Point 3

Acquisition Focus Strategy

This indicates a strategic pivot in capital allocation and growth focus. Moving from a primary emphasis on specific distribution acquisitions (heating oil & propane) to a broader mix that includes HVAC and "tuck-in" deals signals a change in the company's growth thesis and target market, which is a key consideration for investors.

What is the status of the acquisition pipeline and could there be large deals? - Michael Prouting (10K Capital)

20251209-2025 Q4: The pipeline remains active with several opportunities under review, including a mix of tuck-in and smaller standalone deals. - Jeffrey Woosnam(CEO)

Are you targeting HVAC installation servicing businesses or focusing mainly on distribution in your acquisition pipeline? - Timothy Mullen (Laurelton Management)

2025Q2: The focus is primarily on distribution side acquisitions, specifically heating oil and propane businesses. The company is also undertaking a limited initiative to build out its own HVAC business organically. - Jeffrey Woosnam(CEO)

Contradiction Point 4

Acquisition Pipeline Character and Deal Size

This contradiction pertains to the scale and nature of future growth transactions. Shifting the emphasis from a balance between unit repurchases and growth acquisitions (which could include larger deals) to explicitly highlighting a pipeline focused on "smaller" and "tuck-in" deals alters expectations for the magnitude of future capital deployment and earnings impact.

What is the status of the acquisition pipeline, and are there any potential large deals? - Michael Prouting (10K Capital)

20251209-2025 Q4: The pipeline remains active... including a mix of tuck-in and smaller standalone deals. - Jeffrey Woosnam(CEO)

What is the capital allocation strategy for further acquisitions, dividends, and share buybacks? - Michael Prouting (10K Capital)

2025Q1: Capital allocation balances unit repurchases and growth acquisitions, considering timing and economics. The recent acquisitions do not preclude future modest distribution increases... - Jeffrey Woosnam(CEO)

Contradiction Point 5

Acquisition Pipeline Activity Level

This shows a change in the qualitative description of deal flow. Moving from "plenty of activity" and mentioning a completed deal count to a more measured "several opportunities" suggests a potential slowdown or a strategic shift in how the company communicates its deal pipeline's robustness.

What is the status of the acquisition pipeline, and are there any large deals in the works? - Michael Prouting (10K Capital)

20251209-2025 Q4: The pipeline remains active with several opportunities under review... - Jeffrey Woosnam(CEO)

Can you provide an update on the acquisition pipeline? - Michael Prouting (10K Capital)

2025Q3: The company has closed 4 transactions so far this fiscal year... The team remains busy with opportunities, and there is 'plenty of activity' in the marketplace. - Jeffrey Woosnam(CEO)