ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward-Looking Disclosure
This Annual Report on Form 10-K (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 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, pandemic and 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 federal, state and municipal laws restricting greenhouse gases ("GHG") emissions and federal, state and local 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. 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,” “Business Strategy” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Report. 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 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):
Fiscal 2025 (a)
Fiscal 2024
Fiscal 2023
Fiscal 2022
Fiscal 2021
Quarter Ended
Low
High
Low
High
Low
High
Low
High
Low
High
December 31
March 31
June 30
September 30
On November 28, 2025, the NYMEX ultra low sulfur diesel contract closed at $2.33 per gallon.
Income Taxes
New Federal Income Tax Legislation
On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S., which contains several changes to corporate taxation including changes to depreciation deductions, deductions for interest expense and reinstated 100% bonus depreciation on fixed assets acquired and placed in service after January 19, 2025.
Book versus Tax Deductions
The amount of our cash flow generated in any given year depends upon a variety of factors including the amount of our cash income taxes. The amount of depreciation and amortization that we deduct for book (i.e., financial reporting) purposes differs 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 and placed in service. However, this table only includes assets purchased to date, and does not include any forecast for future annual capital purchases.
Estimated Depreciation and Amortization Expense
(in thousands) Fiscal Year
Book
Tax
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 could have received was $15.0 million for fiscal 2025 and $12.5 million for fiscal 2024. For the contracts applicable to fiscal 2025, we were additionally obligated to make an annual payment capped at $5.0 million if degree days exceeded the Payment Threshold. This obligation did not exist under the contract applicable for fiscal 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 in fiscal 2025, we increased delivery and branch expense by $3.1 million under those weather hedge contracts, 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 strikes in the weather hedge contract. In fiscal 2024, we reduced delivery and branch expenses by $7.5 million under those weather hedge contracts, 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 certain 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, 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) was increased from 5% to 10%. In Rhode Island, the minimum required biodiesel blend increased from 10% to 20%, also commencing July 1, 2025. 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. We follow hedge accounting for our interest rate swaps, but we have opted out of, and do not follow hedge accounting for our commodity derivative instruments as hedging instruments. Regarding our interest rate hedges, 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 until the forecasted hedged item is recognized in earnings. As mentioned, 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 commodity 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, conversions to natural gas 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 buying group and association partners are included in our home heating oil and propane customer base. Therefore, any changes in the relationships with these partners could impact gross customer gains and losses going forward.
Customer gains and losses of home heating oil and propane customers
Fiscal Year Ended
Net
Net
Net
Gross Customer
Gains /
Gross Customer
Gains /
Gross Customer
Gains /
Gains
Losses
(Attrition)
Gains
Losses
(Attrition)
Gains
Losses
(Attrition)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Customer gains (attrition) as a percentage of home heating oil and propane customer base
Fiscal Year Ended
Gross Customer
Net
Gross Customer
Net
Gross Customer
Net
Gains
Losses
Gains /
(Attrition)
Gains
Losses
Gains /
(Attrition)
Gains
Losses
Gains /
(Attrition)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
For fiscal 2025, the Company lost 19,600 accounts (net), or 4.7%, of its home heating oil and propane customer base, compared to 16,600 accounts lost (net), or 4.2%, of its home heating oil and propane customer base, during fiscal 2024. Gross customer gains were 2,200 accounts less than the prior year’s comparable period and gross customer losses were 800 accounts higher due largely to an increase in credit losses .
For fiscal 2024, the Company lost 16,600 accounts (net), or 4.2%, of its home heating oil and propane customer base, compared to 14,800 accounts lost (net), or 3.6%, of its home heating oil and propane customer base, during fiscal 2023. Gross customer gains were 11,000 accounts lower than the prior year’s comparable period primarily due to market conditions with regard to physical supply in the first quarter of fiscal 2023 that did not repeat in the current fiscal year and less customer move-ins. Gross customer losses were 9,200 accounts lower primarily due to reduction in the number of customer relocations and other factors.
During fiscal 2025, we estimate that we lost (1.3%) of our home heating oil and propane accounts to natural gas and electricity conversions versus (1.4%) for fiscal 2024 and (1.6%) for fiscal 2023. 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 fiscal 2025, the Company acquired one heating oil business and three propane businesses for approximately $80.5 million. During fiscal 2024, the Company acquired one propane business 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
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum Products
Total
October
January
March
April
(in thousands of gallons)
Fiscal 2024 Acquisitions
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum Products
Total
November
November
February
February
September
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 Annual Report.
Fiscal Year Ended September 30, 2025
Compared to Fiscal Year Ended September 30, 2024
Volume
For fiscal 2025, the retail volume of home heating oil and propane sold increased by 29.2 million gallons, or 11.5%, to 282.6 million gallons, compared to 253.4 million gallons for fiscal 2024. For those locations where we had existing operations during both periods, which we sometimes refer to as the “base business” (i.e., excluding acquisitions), temperatures (measured on a heating degree day basis) for fiscal 2025 were 8.2% colder than fiscal 2024 but 8.3% warmer than normal, as reported by NOAA. For fiscal 2025, net customer attrition for the base business was 4.7%. 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:
Heating Oil
(in millions of gallons)
and Propane
Volume - Fiscal 2024
Net customer attrition
Impact of colder temperatures
Acquisitions
Other
Change
Volume - Fiscal 2025
The following chart sets forth the percentage by volume of total home heating oil and propane sold to residential variable-price customers, residential price-protected customers, and commercial/industrial/other customers for fiscal 2025 compared to fiscal 2024:
Twelve Months Ended
Customers
September 30,
September 30,
Residential Variable
Residential Price-Protected (Ceiling and Fixed Price)
Commercial/Industrial/Other
Total
Volume of motor fuel and other petroleum products sold decreased by 5.2 million gallons, or 4.0%, to 123.9 million gallons for fiscal 2025, compared to 129.1 million gallons for fiscal 2024.
Product Sales
For fiscal 2025, product sales decreased $11.2 million, or 0.8%, to $1,437.6 million, compared to $1,448.8 million in fiscal 2024, due to a decrease in average selling prices that was slightly offset by an increase in total volume sold of 6.3%. Selling prices decreased largely due to a decrease in wholesale product cost of $0.3199 per gallon, or 12.5%, compared to fiscal 2024. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.
Installations and Services Sales
For fiscal 2025, installation and service sales increased $29.5 million, or 9.3%, to $346.8 million, compared to $317.3 million for fiscal 2024. Installation sales increased by $11.7 million, or 9.5%, and service sales increased by $17.8 million, or 9.2%. The increase was driven by $22.6 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 fiscal 2025, cost of product decreased $68.4 million, or 7.0%, to $912.4 million, compared to $980.8 million for fiscal 2024, due to a decrease in wholesale product cost of $0.3199 per gallon, or 12.5%, slightly offset by an increase in total volume sold of 6.3%. 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 transaction. On that basis, home heating oil and propane margins for fiscal 2025 increased by $0.0222 per gallon, or 1.3%, to $1.7022 per gallon, from $1.6800 per gallon during fiscal 2024. In the base business, home heating and propane margins for fiscal 2025 increased by $0.0512 per gallon, or 3.1% to $1.7312 per gallon. We cannot assume that the per gallon margins realized during fiscal 2025 are sustainable for future periods. Product sales and cost of product include home heating oil, propane, motor fuel, other petroleum products and liquidated damages billings.
Twelve Months Ended
September 30, 2025
September 30, 2024
Home Heating Oil and Propane
Amount
(in millions)
Per
Gallon
Amount
(in millions)
Per
Gallon
Volume
Sales
Cost
Gross Profit
Motor Fuel and Other Petroleum Products
Amount
(in millions)
Per
Gallon
Amount
(in millions)
Per
Gallon
Volume
Sales
Cost
Gross Profit
Total Product
Amount
(in millions)
Amount
(in millions)
Sales
Cost
Gross Profit
For fiscal 2025, total product gross profit was $525.2 million, which was $57.2 million, or 12.2%, higher than fiscal 2024, due to an increase in home heating oil and propane volume sold ($49.0 million), an increase in home heating oil and propane margins ($6.3 million) and an increase in gross profit from other petroleum products ($1.9 million).
Cost of Installations and Services
Total installation costs for fiscal 2025 increased by $10.0 million or 9.9%, to $110.9 million, compared to $100.9 million of installation costs for fiscal 2024. This increase was largely due to the higher installation sales from recent acquisitions. Installation costs as a percentage of installation sales were 82.1% for fiscal 2025 and 81.7% for fiscal 2024. The gross profit from installations increased by $1.7 million.
Service expense increased by $15.7 million, or 8.6%, to $198.2 million for fiscal 2025, representing 93.7% of service sales, versus $182.5 million, or 94.2% of service sales, for fiscal 2024. The 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. In fiscal 2025, the demand for service was greater than fiscal 2024 due to colder weather conditions. The gross profit from service increased by $2.1 million.
We realized a combined gross profit from services and installations of $37.7 million for fiscal 2025 compared to a combined gross profit of $33.9 million for fiscal 2024, a $3.8 million increase in profitability.
(Increase) Decrease in the Fair Value of Derivative Instruments
During fiscal 2025, the change in the fair value of derivative instruments resulted in a $13.4 million credit as a decrease in the market value for unexpired hedges (a $1.0 million charge) was more than offset by a $14.4 million credit due to the expiration of certain hedged positions.
During fiscal 2024, the change in the fair value of derivative instruments resulted in a $19.0 million charge due to a decrease in the market value for unexpired hedges (a $14.6 million charge) and a $4.4 million charge due to the expiration of certain hedged positions.
Delivery and Branch Expenses
For fiscal 2025, delivery and branch expenses increased $34.4 million to $400.8 million, compared to $366.4 million for fiscal 2024. The temperatures experienced from November 2024 through March 2025 (the weather hedge period) 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 $23.1 million of expenses from recent acquisitions and a $0.7 million increase in net base business expenses. The increase in the base business expenses was driven by a $2.3 million, or 2.2%, increase in delivery expenses due to a 4.1 million gallon, or 1.6%, increase in home heating oil and propane volume sold in the base business compared to the prior year and $2.6 million of other net expense increases that were partially offset by a $4.2 million decrease in insurance related costs.
Depreciation and Amortization Expenses
For fiscal 2025, depreciation and amortization expense increased $3.9 million, or 12.2%, to $35.4 million, compared to $31.5 million for fiscal 2024, primarily due to acquisitions.
General and Administrative Expenses
For fiscal 2025, general and administrative expenses increased $2.1 million, or 7.4%, to $30.5 million, compared to $28.4 million for fiscal 2024, due to a $1.5 million increase in profit sharing expense and a $0.6 million increase salaries and benefits expenses. 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 fiscal 2025, finance charge income increased by $0.3 million, or 7.4%, to $4.9 million compared to $4.6 million for fiscal 2024, primarily due to higher customer late payment charges.
Interest Expense, Net
For fiscal 2025, net interest expense increased by $2.7 million, or 23.9%, to $14.3 million compared to $11.6 million for fiscal 2024. The year-over-year change was driven by an increase in average borrowings of $58.2 million from $158.9 million for the fiscal 2024 to $217.1 million for fiscal 2025 that was partially offset by a decrease in the weighted average interest rate from 7.3% for fiscal 2024 to 7.1% for fiscal 2025. To hedge against rising interest rates, the Company utilizes interest rate swaps. At September 30, 2025, approximately 39% 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 fiscal 2025, amortization of debt issuance costs increased to $1.1 million from $1.0 million for fiscal 2024.
Other Income, Net
Other income, net for fiscal 2025 of $3.8 million represents the net gain on the sale of land and building at a New Jersey operating location with a carrying value of $1.0 million for net cash proceeds of $4.8 million.
Income Tax Expense
For fiscal 2025, the Company’s income tax expense increased by $16.1 million to $29.4 million, from $13.3 million for fiscal 2024. The increase was driven by a $54.3 million increase in income before income taxes and an increase in the effective income tax rate from 27.5% for fiscal 2024 to 28.6% for fiscal 2025 due primarily to an increase in state taxes.
Net Income
For fiscal 2025, net income increased $38.3 million, or 108.7%, to $73.5 million, primarily due to a $32.4 million favorable change in the fair value of derivative instruments, a $24.8 million increase in Adjusted EBITDA and a $3.8 million gain on the sale of land and a building at a New Jersey operating location that was partially offset by a $16.1 million increase in income tax expense, a $3.9 million increase in depreciation and amortization expenses and a $2.7 million increase in interest expense.
Adjusted EBITDA
For fiscal 2025, Adjusted EBITDA increased by $24.8 million, or 22.2%, to $136.4 million compared to fiscal 2024, primarily due to an $18.5 million increase in Adjusted EBITDA in the base business and a $16.9 million increase in Adjusted EBITDA from recent acquisitions that was partially offset by a $10.6 million increase in expense related to the Company's weather hedge contracts. The increase in Adjusted EBITDA in the base business was driven by an increase in home heating oil and propane per gallon margins, higher home heating oil and propane volume sold 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 provide additional information for evaluating the Company’s ability to make the Minimum Quarterly Distribution.
EBITDA and Adjusted EBITDA are calculated as follows:
Twelve Months Ended
September 30,
(in thousands)
Net income
Plus:
Income tax expense
Amortization of debt issuance cost
Interest expense, net
Depreciation and amortization
EBITDA (a)
(Increase) / decrease in the fair value of derivative instruments
Other income, net
Adjusted EBITDA (a)
Add / (subtract)
Income tax expense
Interest expense, net
Provision for losses on accounts receivable
(Increase) decrease in receivables
(Increase) decrease in inventories
Decrease in customer credit balances
Change in deferred taxes
Change in other operating assets and liabilities
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
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 and should be viewed 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.
Fiscal Year Ended September 30, 2024
Compared to Fiscal Year Ended September 30, 2023
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within the Form 10-K for the fiscal year ended September 30, 2024 for the fiscal 2024 to fiscal 2023 comparative discussion.
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 quarters) when customer payments exceed the cost of deliveries.
During fiscal 2025, cash provided by operating activities decreased $40.0 million to $71.0 million, compared to $111.0 million provided by operating activities during fiscal 2024, as a $17.3 million increase in cash flows from operations and a $5.5 million increase of cash from the timing of accounts payable payments was more than offset by an increase in net trade receivables on a comparable basis (including accounts receivable and customer credit balance accounts) that drove a $28.9 million reduction in cash provided by operating activities. The 8.2% colder weather experienced throughout fiscal 2025, additional volume from acquisitions, and a 3.1% increase in sales for the fourth quarter of fiscal 2025 drove an increase in net trade receivables as compared to the prior year. Days sales outstanding increased slightly by 1.5 days to 37.9 days as of September 30, 2025 compared to 36.4 days as of September 30, 2024. The timing of inventory purchases further drove a $21.7 million increased cash usage compared to the prior year as we entered the 2025 heating season with a lower level of inventory than in fiscal 2024, as well as a $7.5 million reduction in cash required for collateral and settlement liabilities at derivative counterparties in the prior fiscal year that did not repeat in the current fiscal year, and $4.7 million of other net changes in working capital.
During fiscal 2024, cash provided by operating activities decreased $12.7 million to $111.0 million, compared to $123.7 million provided by operating activities during fiscal 2023. The decrease was driven by a decrease in collection of trade receivables on a comparable basis (including accounts receivable and customer credit balance accounts) of $37.4 million that was partially offset by a $14.2 million increase in cash flows from operations, $5.2 million less payroll taxes paid in the first fiscal quarter of 2024 versus the first fiscal quarter of 2023 as the result of deferring payment of certain payroll tax withholdings in first quarter of fiscal 2021 to the first fiscal quarter of fiscal
2023, a $2.1 million decrease in cash required to purchase product inventory and $3.2 million of other net changes in working capital.
Investing Activities
Our capital expenditures for fiscal 2025 totaled $14.9 million, as we invested in our fleet and other equipment ($9.1 million), refurbished certain physical plants ($2.2 million), expanded our propane operations ($1.7 million) and invested in computer hardware and software ($1.9 million).
During fiscal 2025, $2.6 million of earnings were reinvested into an irrevocable trust to secure certain liabilities for 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 were not required to make any additional funding into the captive due in part to our historical and projected claims experience and the interest income generated in fiscal 2025.
During fiscal 2025, the Company acquired one heating oil business and three propane businesses for approximately $80.5 million in cash. The gross purchase price was allocated $38.7 million to intangible assets, $17.7 million to goodwill, $25.2 million to fixed assets, and reduced by $1.1 million in negative working capital.
During fiscal 2025, the Company acquired certain intangible and fixed assets for $7.7 million and sold certain assets for cash proceeds of $0.3 million. The Company also sold fixed assets for cash proceeds of $5.5 million, including $4.8 million of net cash proceeds from the sale of a New Jersey operating location.
Our capital expenditures for fiscal 2024 totaled $10.7 million, as we invested in our fleet and other equipment ($6.1 million), refurbished certain physical plants ($2.1 million), expanded our propane operations ($1.2 million) and invested in computer hardware and software ($1.3 million).
During fiscal 2024, $1.7 million of earnings were reinvested into an irrevocable trust to secure certain liabilities for our captive insurance company.
During fiscal 2024, the Company acquired one propane business and four heating oil businesses for approximately $49.4 million in cash. The gross purchase price was allocated $40.4 million to intangible assets, $13.7 million to goodwill, $4.9 million to fixed assets, and reduced by $9.6 million in negative working capital.
Financing Activities
During fiscal 2025, we repaid $21.0 million of our term loan, borrowed $75.4 million under our revolving credit facility and subsequently repaid $75.4 million. We also repurchased 1.3 million Common Units for $15.6 million in connection with our unit repurchase plan, and paid distributions of $24.5 million to our Common Unit holders and $1.6 million to our General Partner unit holders (including $1.5 million of incentive distributions as provided in our Partnership Agreement).
During fiscal 2024, we refinanced our five-year term loan and the revolving credit facility with the execution of the seventh amended and restated revolving credit facility agreement. This amendment extended our bank facility to September 2029. The $210 million of proceeds from the new term loan were used to repay the $132.1 million outstanding balance of the term loan under the prior credit facility. Prior to amending the bank facility, we also repaid $16.4 million of our term loan, borrowed $79.6 million under our revolving credit facility and subsequently repaid $79.8 million. We also repurchased approximately 1.0 million Common Units for $11.1 million in connection with our unit repurchase plan, and paid distributions of $23.6 million to our Common Unit holders and $1.4 million to our General Partner unit holders (including $1.3 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.
Funding for capital requirements, at least in the near term, are expected to be funded by cash flows from operating activities, cash on hand as of September 30, 2025 ($24.7 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 September 30, 2025, we had accounts receivable of $102.1 million of which $67.6 million is due from residential customers and $34.5 million is due from commercial customers. Our ability to borrow from our bank group is based in part on the aging of these accounts receivable. 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 September 30, 2025, we had no borrowings under our revolving credit facility, $189.0 million outstanding under our term loan, $5.1 million in letters of credit outstanding and $1.3 million hedge positions were secured under the credit agreement.
As of September 30 2025 Availability as defined in the seventh amended and restated revolving credit facility agreement was $165.0 million and we were in compliance with the financial covenants. 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) which was $21.4 million at September 30, 2025 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.
Maintenance capital expenditures for fiscal 2026 are estimated to be approximately $12.9 million, excluding the capital requirements for leased fleet which we currently estimate to be $13.4 million. In addition, we plan to invest approximately $1.5 million in our propane operations. Distributions for fiscal 2026, at the current quarterly level of $0.1850 per unit, would result in aggregate payments of approximately $24.4 million to Common Unit holders, $1.6 million to our General Partner (including $1.5 million of incentive distribution as provided for in our Partnership Agreement) and $1.5 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. Under the terms of our seventh amended and restated revolving credit facility agreement, our term loan is repayable in quarterly payments of $5.3 million. We are not required to make an additional term loan repayments as we did not generate any Excess Cash Flow in fiscal 2025 due to amounts being reinvested back into the business (see Note 13 - Long-Term Debt and Bank Facility Borrowings). 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
We have no obligations arising out of a material variable interest held by us in an unconsolidated entity and, we have no off-balance sheet debt.
Long-term contractual obligations, except for our long-term debt and New England Teamsters and Trucking Industry Pension Fund withdrawal obligations and operating leases liabilities, are not recorded in our consolidated balance sheet. Non-cancelable purchase obligations are obligations we incur during the normal course of business, based on projected needs. The Company had no capital lease obligations as of September 30, 2025.
The table below summarizes the payment schedule of our contractual obligations at September 30, 2025 (in thousands):
Payments Due by Fiscal Year
Total
and 2028
and 2030
Thereafter
Debt obligations (a)
Operating lease obligations (b)
Purchase obligations and other (c)
Interest obligations (d)
Reflects payments due of debt existing as of September 30, 2025, considering the terms of our credit agreement. (See Note 13 - Long-Term Debt and Bank Facility Borrowings)
Represents various operating leases for office space, trucks, vans and other equipment with third parties. Maturities of operating leases are presented undiscounted. (See Note 16 - Leases)
Represents non-cancelable commitments as of September 30, 2025 for operations such as customer related invoice and statement processing, voice and data phone/computer services, real estate taxes on leased property and our undiscounted future payment obligations to the New England Teamsters and Trucking Industry Pension Fund.
Reflects interest obligations on our term loan due September 2029 and the unused commitment fee on the revolving credit facility.
Recent Accounting Pronouncements
Refer to Note 2 – Summary of Significant Accounting Policies for discussion regarding the impact of accounting standards that were recently issued but not yet effective, on our consolidated financial statements.
Critical Accounting Policy and Critical Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to establish accounting policies and make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. The Company evaluates its policies and estimates on an on-going basis. A change in any of these critical accounting policies and estimates could have a material effect on the results of operations. The Company’s Consolidated Financial Statements may differ based upon different estimates and assumptions. The Company’s critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors.
Our significant accounting policies are discussed in Note 2 of the Notes to the Consolidated Financial Statements. We believe the following are our critical accounting policies and 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, future 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, 2025, we had approximately $78.8 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.
ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk primarily through our credit agreement. We utilize these borrowings to meet our working capital needs.
At September 30, 2025, we had outstanding borrowings totaling $189.0 million, of which $114.5 million are subject to variable interest rates under our credit agreement. 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 $0.8 million.
We regularly use derivative financial instruments to manage our exposure to market risk related to changes in the current and future market price of home heating oil. 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 September 30, 2025, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $10.7 million from $(0.5) million to a fair market value of $10.2 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $8.0 million to a fair market value of $(8.5) million.
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules referred to in the index contained on page F-1 of this Report are incorporated herein by reference.
