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Ormat Technologies’ (ORA) CEO Isaac Angel on Q1 2016 Results – Earnings Call Transcript

Ormat Technologies, Inc. (NYSE: ORA ) Q1 2016 Earnings Conference Call May 05, 2016 09:00 AM ET Executives Rob Fink – Managing Director, Hayden Investor Relations Isaac Angel – Chief Executive Officer Doron Blachar – Chief Financial Officer Analysts Paul Coster – JPMorgan Operator Good morning, and welcome to the Ormat Technologies, Incorporated First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Rob Fink. Please go ahead. Rob Fink Thank you, operator. Hosting the call today are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts, and projections about future events that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company’s plans, objectives, and expectations for future operation and are based on management’s current estimates, projections, future results, or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see Risk Factors as described in Ormat’s Annual Report on Form 10-K filed with the SEC. In addition, during the call we will present non-GAAP financial measures such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management’s reason for presenting such information is set forth in the press release that was issued last night, as well as in the slides posted on our website. Because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from the financial statement prepared in accordance with GAAP. Before I turn the call over to management, I would like to remind everyone that the slide presentation accompanying this call may be accessed on the Company’s website, at ormat.com, under the Events & Presentations link that’s found on the Investor Relations tab. With all that said, I would now like to turn the call over to Isaac. Isaac, the call is yours. Isaac Angel Thank you, Rob, and good morning, everyone. Thank you for joining us today for the presentation of our first quarter 2016 results and our outlook for the remainder of the year. Starting with slide 4, the first quarter was a great start to the year for Ormat. We executed well, delivering strong revenue and profitability, and our focus on improving our operational and manufacturing efficiency is the main driver for margin expansion and improved results. Both our product segment and electricity segment delivered improved results year after year. Our electricity segment delivered a 20% increase, reaching $108 million, due to higher electricity generation and new expansions coming on line. Our product segment grew 44%, to $44 million, benefiting from several large contracts signed in the previous years. Overall, total revenue grew 26%, to $152 million, which demonstrates strong growth as we overcome the impact of lower commodity prices which continues to affect a portion of our revenue in our electricity segment. In addition, we achieved high gross margin levels in both segments of our business, supporting significant increases in our overall profitability. This performance is due primarily to two factors: first, our balanced business model being vertically integrated; and second, our methodical efforts to improve operational efficiency. We have been focused on efficiency and operational excellence in every aspect of our business, and that effort is reflected in our numbers. I will elaborate on the progress being made and our plans for the future after Doron reviews the financial results. Doron? Doron Blachar Thank you, Isaac, and good morning, everyone. Let me start by providing an overview of our financial results for the three months ended March 31, 2016. Starting with slide 6, for the first quarter of 2016 total revenue increased 26.1%, to $151.6 million, compared to $120.2 million in the first quarter of 2015. Moving to slide 7, revenues in the electricity segment increased 19.9%, to $107.9 million, in the first quarter of 2016, up from $90 million in the first quarter of last year. Slide 8, revenues in the product segment were $43.7 million, an increase of 44.4%, compared to $30.3 million in the first quarter of 2015. Moving to slide 9, gross margin in the first quarter of 2016 increased to 42.1%, from 36.6% in the first quarter of 2015. Our electricity segment gross margin increased to 41%, due largely to new expansions coming on line, improved efficiency at the plant level, and also the transition to a new fixed-rate PPA for our Heber 1 power plant. Part of the increase in gross margin this quarter is driven by timing of operating expenses. We expect a lighter second quarter in the electricity segment with higher expenses that will result in lower margins, on average, in the rest of the year. Our product segment generated 45% gross margin, a particularly strong level for this segment of our business. It was mainly due to the different product mix and different margins in the various sales contracts, improvements made at our manufacturing facility which enables us to shorten lead time, as well as reduction in commodity prices that reduced the cost of raw material in subcontracting. We expect our gross margin in the product segment during 2016 to be higher than normal. The margin should normalize in 2017. Turning to slide 10, operating income for the first quarter of 2016 increased to $50.5 million, compared to $29.9 million in the first quarter of 2015, representing 69.3% increase. Operating income attributable to our electricity segment was $34.8 million, compared to $24 million in the first quarter of 2015, representing a 45.2% increase. Operating income of the product segment was $15.8 million, compared to $5.9 million in the first quarter of 2015, representing 168% increase. Moving to slide 11, net income attributable to the company’s stockholders for the first quarter of 2016 was $29.3 million, or $0.59 per diluted share, compared to $10 million, or $0.21 per diluted share, in the first quarter of 2015. Let me spend a moment speaking on our hedging strategy that is designed to mitigate the impact of changes in commodity prices. We continued to make progress in reducing our exposure to these fluctuations. In December of 2015, the Heber 1 contract was switched to a fixed-rate price, which mitigate our exposure and reduce the portfolio exposed to natural gas prices to approximately 90 megawatts and less than 10% of 2016 expected electricity revenue. Recently, we reduced our economic exposure to fluctuation in the price of oil and natural gas until the end of 2016, by entering into a derivative transaction. We recognized a net loss for this transaction of $0.1 million in the first quarter of 2016, which is recorded within foreign currency translation and transaction gains or losses, compared to a net gain of $0.3 million in the first quarter of 2015 that was recognized in the electricity segment revenue. Please turn to slide 12, adjusted EBITDA. Adjusted EBITDA for the first quarter of 2016 was $80.2 million, compared to $65.3 million in the same period last year, which represents a 22.8% increase. Reconciliation of the EBITDA and adjusted EBITDA is described on the appendix slide. Turning to slide 13, cash and cash equivalents as of March 31, 2016, were $148.5 million. We generated $27 million in cash from operating activities and invested $31 million in CapEx. The accompanying slide breaks down the use of cash during the quarter. Our long-term debt as of March 31, 2016, and the payment schedules are presented on slide 14 of the presentation. The average cost of debt for the company stands at 5.9%. On May 4, 2016, Ormat’s Board of Directors approved payment of a quarterly dividend of $0.07 per share for the first quarter. The dividend will be paid on May 24, 2016, to shareholders of record as of closing of business on May 18, 2016. In addition, the Company expects to pay a quarterly dividend of $0.07 per share in the next two quarters. This concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac? Isaac Angel Thank you very much, Doron. Starting with slide 16, for an update on operations. In the first quarter, we delivered strong results that demonstrate that we are making solid progress on our multiyear strategic plan. Moving to slide 17, we continue to make improvement in all aspects of our value chain. Specifically, we are focused on reducing manufacturing lead time, improving procurement to lower our material cost, and improving management control. This process translates into a significant improvement in gross margin and adjusted EBITDA margins. Turning to slide 18, another goal was to expand our electricity generation, both organically and inorganically. Electricity generation during the quarter was 1.4 million megawatt hours, an increase of 16.4% compared to the last year. This increase was due to commencement of the second phase of Don Campbell and McGinness Hills, power plants in 2015, as well as Plant 4 of the Olkaria III complex in Kenya which come on line in January this year. Beyond expansion, we continue to make plant-level adjustments designed to optimize our electricity generations. These adjustments include the elimination of older and less efficient components and modifying output based on the underlying resource. The goal is to improve profitability, and we are making meaningful process here, as well. In addition, we are also working to monetize the Don Campbell plant and further strengthen our balance sheet as part of our joint venture with Northleaf Capital Partners. Currently, we are conducting the required power generation tests under the agreement to determine the final terms for closing. Following the closing, Ormat Nevada will contribute Don Campbell 2 to ORPD, and Northleaf will buy their interest share. We expect to close this in the second quarter of 2016. Turning to slide 19, another part of our expansion strategy involves targeted acquisitions. We recently signed definitive agreements to acquire gradually 85% of a geothermal plant in the island of Guadalupe. We expect to close this acquisition during the second quarter. This acquisition will be immediately accretive to Ormat CPS. Turning to slide 20, for an update on projects under construction. We plan to add 160 to 190 megawatts by the end of 2018 by bringing new plants on line, expanding existing plants, as well as adding capacity from the recent acquisitions. The expansion plan includes the Platanares geothermal project in Honduras, which is currently under construction, and we expect to reach commercial operation by the end of 2017. We also initiated development efforts in two projects in Nevada. Tungsten Mountain and Dixie Meadows are each expected to generate 25 to 35 megawatts once they come online in 2017 or 2018. While the drilling activity is ongoing in both projects, we are making progress towards securing PPAs. We believe that these projects may qualify for the production tax credit. In Sarulla, Indonesia, engineering and procurement for the first and second phases has been substantially completed, but it’s still in progress for the third phase. Construction for the first phase is in progress, with major activities related to mechanical and electrical equipment installation. The infrastructure work for the second phase is in progress. Major equipment, including Ormat’s OECs and Toshiba’s steam turbines, for the first phase has arrived at the site and currently installed. The drilling of production and injection wells is also in progress for all three phases. The project is still experiencing delays, mainly in field development of the second phase and third phases and cost overruns. With respect to Ormat’s role as a supplier, all contractual milestones under the supply agreement were achieved and main shipment of the second phase is on its way to the site. Manufacturing of third phase equipment is progressing as planned. The consortium expects that the first phase of operations to commence towards the end of 2016, and the remaining two phases of operations are scheduled to commence within the 18 months thereafter. The projects I just described, as well as additional projects under various stages of development, are expected to support our expansion by the end of 2018. Besides the investment in new projects, we are continuing our exploration and business development activities to support future growth. On slide 21, let me briefly discuss the recent agreement with Alevo. On March 30, 2016, Ormat signed an agreement with a subsidiary of Alevo Group S.A., a leading provider of energy storage systems, to jointly build, own, and operate the Rabbit Hill Energy Storage Project, which is located in Georgetown, Texas. The storage market is one of the most developing, growing, and exciting areas in the energy industry today, and this agreement moves us for the first time into the energy storage arena. We view this market as key to our long-term growth plan, as it helps us to further diversify revenues and support our position as a leader in the renewable energy industry. Under the terms of the agreement, Ormat will own and fund the majority of the Rabbit Hill Energy Storage Project and will provide engineering, construction services, and balance of plant equipment. Alevo will provide its innovative GridBank inorganic lithium ion energy storage system in conjunction with the power conversion systems. In addition, Alevo will provide ongoing management, operations, and maintenance services for the life of the project. We do not expect this first entry into the storage market to generate material revenues for Ormat. However, we do believe this collaboration will allow us to make significant progress towards our expansion in this field. We continue to actively explore opportunities in this area and remain focused on building relationships and collaboration with established technology providers. We believe that such collaboration can leverage our experience, relationships, and project management, and other capabilities. If you could please turn to slide 22, you would see that our CapEx requirement for the balance of 2016 stands at approximately $245 million. We plan to invest a total of approximately $75 million in capital expenditures on new projects under construction and enhancements. And additional approximately $170 million are budgeted for exploration activities, development of new projects, investment in new activities that reflects expenditure under the new strategic plan, and maintenance CapEx for operating projects. In addition, $51 million will be required for debt repayment. Turning to slide 23, for an update on our product segment. Our backlog as of May 4, 2016, stands at approximately $214 million. Moving to slide 24, for a regulatory update. We shared with you the tremendous efforts Ormat’s team is investing in order to accelerate growth of the electricity segment to increase its portion in the future. In addition to shortening the manufacturing construction lead time, we are also investing efforts to shorten the development process. One of the hurdles in the geothermal development is obtaining key permitting in order to test prospect viability. We have been supporting and lobbying the geothermal components of Senator Dean Heller’s Geothermal Exploration Opportunity Act to simplify geothermal exploration review process in the future. Under the Energy Policy Modernization Act of 2015, which passed the U.S. Senate on April 2016, an agreement was reached to approve 29 amendments, including Senator Heller’s Public Land Renewable Energy Development Act, which streamlines permitting for renewable energy projects on federal land. If the bill will pass the House unchanged, it will be significant achievement in improving ability to assess potential geothermal resources faster than before and, by that, to accelerate the development process. Turning to slide 25, for 2016 guidance. We are reiterating our 2016 full-year guidance. For the year, we expect total revenue to be between $620 million and $640 million. We expect revenue in our electricity segment to be between $410 million and $420 million. For the product segment, we expect revenues to be between $210 million and $220 million. We expect 2016 adjusted EBITDA to be between $300 million and $310 million. I’m very pleased with our performance. The first quarter represents a strong start to what we believe will be another great year for Ormat. And that concludes our remarks for today, and I thank you very much for continued support. Operator? Question-and-Answer Session Operator [Operator Instructions]. The first question comes from Paul Coster from JPMorgan. Please go ahead. Paul Coster Yes, thanks, few quick questions. First up, you’ve made tremendous progress in the electricity segment in terms of improving the yield of the existing assets. How far are we, though, from sort of the point of diminishing returns in terms of that focus? Isaac Angel Hi, Paul. Thanks very much. What was the last part of your question? Paul Coster I’m just wondering have you got to the point of having realized the efficiencies at this point, do you still have further opportunities ahead? Isaac Angel Paul, as we explained last year, this is going to be a very long journey, and we barely touched only part of the efficiencies that we have planned. We’re working on a [indiscernible] basis, and we still have a long way to go until we will actually finish all the efficiencies that we are planning to do. Paul Coster Okay. The backlog is continuing to come down. Is there anything being added in to backlog? Or, are we just simply depleting it as a result of the Sarulla project? Isaac Angel First of all, you realize that the $256 million Sarulla project is a very large project and, obviously, it affects the backlog. On the other hand, as I said last conference call, we are making a tremendous effort, and we are in the middle of a journey to increase our electricity segment which will continue to grow faster than in the past. But if we are looking forward, I would not be worried about the backlog. And there is also another thing that you should take into consideration. We decreased seriously our delivery time, for something like from 20 months to less than 12 months, which means that projects that we are signing which used to be for the year after, now they are kicking in within the next 12 months, which makes a difference in the calculation of the backlog. Paul Coster So, in other words, you’re expecting backlog to plateau soon and maybe even start rebuilding? Does that sound – is it possible that would happen within the 2016 timeline? Isaac Angel I’m writing this down, Paul, and I hope it’s going to happen. Paul Coster Okay. My last question is oil and gas prices have actually ticked up a bit recently. Is there any way in which you might start to capture the benefit of a positive inflection in prices before the point at which you move as many of these projects as possible to a fixed rate? Isaac Angel We still have about one-third of our exposure in oil and two-thirds in natural gas, which is barely moving. On the one-third which is going up, it is not something that’s going to change in the near future, which is our Puna power plant, and we hope we are going to catch the increase. And maybe Doron would like to add here something. Doron Blachar Hi, Paul. We took a different approach to the hedging due to the very, very low prices at the beginning of the year. So, we actually are able to enjoy some of the increase in the oil prices, not all of it, but some of it. And on the gas, if the gas prices are relatively stable to the beginning of the year, there isn’t much change. But as prices goes up, it gives a potentially better performance next year with the higher prices on the oil and natural gas prices. Paul Coster Very good. Thank you so much. Isaac Angel Thank you Paul. Operator [Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Isaac Angel for any closing remarks. Paul Coster Okay. Thanks a lot operator. Thank you very much for your continued support during the year, and we are very optimistic, management here in Ormat. And see you next conference call. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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Atmos Energy’s (ATO) CEO Kim Cocklin on Q2 2016 Results – Earnings Call Transcript

Atmos Energy Corporation (NYSE: ATO ) Q2 2016 Earnings Conference Call May 5, 2016 10:00 ET Executives Susan Giles – Vice President, Investor Relations Kim Cocklin – Chief Executive Officer Mike Haefner – President and Chief Operating Officer Bret Eckert – Senior Vice President and Chief Financial Officer Analysts Chris Turner – JPMorgan Spencer Joyce – Hilliard Lyons Faisel Khan – Citigroup Charles Fishman – Morningstar Mark Levin – BB&T Operator Greetings and welcome to the Atmos Energy Second Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mrs. Susan Giles. Thank you, Mrs. Giles. You may begin. Susan Giles Thank you, Selena and good morning everyone. Thank you all for joining us. This call is being webcast live on the internet. Our earnings release, conference call slide presentation and Form 10-Q are all available on our website at atmosenergy.com. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 22 and more fully described in our SEC filings. Our first speaker is Bret Eckert, Senior Vice President and CFO of Atmos Energy. Bret? Bret Eckert Thank you, Susan and good morning everyone. We appreciate you joining us and your interest in Atmos Energy. If you would like to follow me on Slides 2 and 3 of the slide deck, you will see that realized net income for the quarter was $144 million or $1.40 per diluted share. For this current 6-month period realized net income was $240 million or $2.33 per diluted share. Positive rate outcomes in our regulated businesses drove our growth for the three and the six-month periods. Rate release for our regulated distribution and pipeline operations combined generated about $24 million of incremental margin in the quarter and about $48 million for the current six months. However, warmer than normal weather affected all segments of our business. For the quarter and six month periods, we experienced a 21% decrease in regulated distribution sales volumes due to weather that was 25% warmer quarter-over-quarter. However, our weather normalization mechanisms, which cover about 97% of utility margins, worked as designed during the warm heating season. As a result, gross profit decreased just $2.2 million for the quarter and $3.3 million for the six month period due to the warmer than normal weather. Additionally, although our regulated pipeline experience decreased through system volumes and lower storage and blending fees due to the warm weather in the current quarter, volumes are only down about 1% on a year-to-date basis. And in our non-regulated segment, we experienced higher settlement losses on long financial positions compared to both prior year periods. Focusing now on our spending, consolidated O&M was flat quarter-over-quarter but rose about $6 million in the current six months period primarily due to increased pipeline maintenance spending as well as the timing of spending period over period. Capital spending increased by $97 million in the first six months compared to one year ago primarily due to planned increases in spending in both of our regulated segments. About two-thirds of this increase was incurred in our regulated pipeline segment where we continue to enhance and fortify our Bethel and Tri-City storage fields to improve our ability to reliably deliver gas in the Mid-Tex division and APT’s other LDC customers. We remain on track to achieve our capital budget target of $1 billion to $1.1 billion for fiscal 2016 as you will see in the slide deck. Moving now to our earnings guidance for fiscal 2016, with the winter heating season coming to an end, we have tightened our projections and earnings per share range for fiscal 2016. As shown on Slide 12, we expect fiscal 2016 earnings per diluted share to range between $3.25 and $3.35 excluding unrealized margins at September 30, 2016. The expected contribution from our regulated operations as well as estimates for selected expenses for the year have been tightened from our original projections made last November. The expected contribution from our non-regulated operations remains unchanged. We expect the continued execution of our infrastructure investment strategy, coupled with constructive regulation will be the primary driver for this year’s results. Looking on Slide 13, we continue to anticipate annual operating income increases of between $100 million and $125 million from approved rate outcomes in the year. Thank you for your time. And I will now hand the call to our CEO, Kim Cocklin for closing remarks. Kim? Kim Cocklin Thank you, Bret very much and good morning everyone. Very good quarter. An excellent first half. As Bret said, we came through a warmer than normal winter in excellent shape. We are able to tighten guidance. And with the approval of the pipeline GRIP filing in Texas on May 3, we now have generated $71 million of revenues from rate outcomes, and as Bret said, are on target to achieve our target of $100 million to $125 million this year. We do have filings pending before agencies which seek a total of $56 million and we expect to file a few more cases before year end. These results very importantly mark our over five consecutive years of successfully executing our growth strategy that we began in 2011 and continues our journey in meeting the very important commitments of investing in our infrastructure to improve the safe operation of our system, to grow earnings at a level of 6% to 8% annually and to target a total shareholder return of 9% to 11%. We now will open it up for questions. Selena? Question-and-Answer Session Operator Thank you. [Operator Instructions] The first question is from Chris Turner from JPMorgan. Please go ahead. Chris Turner Good morning, guys. I wanted to check in on the pipeline rate case, I think you kind of last updated us by saying that you would file late this year early next year. What’s the latest on timing thoughts and cap structure kind of request versus your current? Kim Cocklin It’s pretty much on target is what we have been messaging you with. We intend to file it probably late this year, probably December. The cap structure we are targeting is still in the 57% to 58% equity component, which is what we anticipate having as we work through our financial plan for funding the capital budget this year. And really as we have talked about, we are going to file everything right down the middle of the fairway and not ask for anything outside that we don’t have in place right now. So, there really isn’t any change and we are on target to do everything that we have been talking to you about. If there is any changes we will have any updates at the AGA Financial Forum coming up in May, but we don’t anticipate having any. Chris Turner Okay. And then is it the right way to think about that case that you guys have recovered most of the capital return on and of already through the GRIP mechanism and most of the kind of wild card or uncertainty from our perspective that will flow through to your bottom line versus what you currently are getting is on the cost side? Kim Cocklin We will have an update to the rate base numbers obviously and we will have all our investment that we have made from the time of the GRIP filing this year through that end of that case and then we will be filing another GRIP filing after the case is filed. So, there will be additional increments to rate base in the case. Chris Turner Okay, great. And then can you remind us of when you expect to next be a cash taxpayer based on your current estimates and the changes with bonus depreciation late last year? And then also kind of maybe give an update on your expectations of using your ATM issuance mechanism that you recently launched in terms of timing this year and maybe next as well? Kim Cocklin First on the cash taxpayer, we don’t anticipate being a cash taxpayer in the current 5-year plan through 2020. So it will be after that, before we start to pay cash taxes. As far as the ATM Chris, the plans are consistent with what we disclosed at our November analyst day. We expect to do $300 million to $400 million over the 5-year plan and $50 million to $100 million on an annual basis. Chris Turner Okay. And would that be somewhat evenly spread throughout the year or would you do that kind of at certain points? Kim Cocklin I don’t – I think we are going to stick with the $50 million to $100 million as you go through that period. I will tell you that all of our financing plans have been contemplated and included in our tightened guidance range for fiscal ‘16, as well as our guidance that we have out there in 2020. Chris Turner Okay, great. Thanks guys. Kim Cocklin Thank you, Chris. Operator The next question is from Spencer Joyce with Hilliard Lyons. Please go ahead. Spencer Joyce Bret, Kim, Susan good morning. Kim Cocklin Good morning. Spencer, who is the Derby winner this year? Spencer Joyce Well, I am sorry, that’s why I had to chime in. I am on the favorite. I kind of like Nyquist this year. Kim Cocklin Nyquil [ph]…? Spencer Joyce Yes, almost Nyquist. But in any case, just one sort of broad big picture question from me, you all have been very clear about why you have avoided latching on to some of the major midstream projects that we have seen here out East a little bit and at least from my vantage point, it seems like the environmental contingent is becoming more organized and a bit more vocal and we have seen delays for Constitution, PennEast, I mean almost any named project we have seen delays at this point. I am wondering if you have seen any of that public sentiment shift into some of your smaller diameter, shorter-haul projects or is it really just business as usual as far as your pipe in the ground goes? Kim Cocklin No that has – none of that consternation is translated into any of the projects that we have got and the capital investment we are doing. I mean the regulators and our customers understand how important it is for us to continue to pursue that investment to make our system as safe as possible and continue to – our journey of becoming the nation’s safest utility. So, we are also not trying to clear new right away or go through areas that have not – that don’t have pipe in the ground right now. So, it makes a significant difference when you are trying to put those new systems in and trying to clear a path for them and that there is a great deal of opposition that goes along. And then you have got the size of the pipe itself, those things are talking 36 inch, 42 inch pipe and unfortunately you have got some stuff that’s been in the news here lately, Bethlehem Township in Pennsylvania with the Texas Eastern incident last week. So it’s pretty much elevated the opposition, but for us I mean we continue to operate in a – in kind of under the radar. And people see the need. And it’s a small pipe in most situations where we are dealing with it. So, no. Spencer Joyce Alright, that sounds great, good color there and glad to hear its business as usual. That’s all I had, we will see you in Naples. Kim Cocklin Okay. Spencer, look forward to it. Operator The next question is from Faisel Khan from Citigroup. Please go ahead. Faisel Khan Hi, good morning. It’s Faisel from Citigroup. Kim Cocklin Faisel, where have you – I thought you were doing the Geico commercials or something. We haven’t heard from you in years. Faisel Khan Yes, it has been several quarters, since I have asked a question, but and think of where the stock has gone too. So it’s probably a good thing, right. Kim Cocklin Yes. We have got a good run. Faisel Khan Yes. Just a couple of questions for you and I will get out of the queue. Just on the – with the amount of rate cases that you have going on and going forward, if you can just remind us sort of what the history is and sort of the ask versus the settled, so what percentage you usually get from the ask for these rate cases when you settle them? Bret Eckert Keep in mind, Faisal we have got annual mechanisms that cover about 93% of our filings, so. Kim Cocklin These are not traditional filings. Normally, in a general rate case, you handicap the filed form out versus – the request versus the achieved at about 50%, but so many of our filings right now, as Bret pointed out 93% are covered by annual mechanisms that really have – are very prescriptive and there is not a lot of controversy over the computation and the methodology that’s utilized to increase either the O&M or the rate base adjustments. And then you have plug and play ingredients normally associated with the cap structure that may or may not change and the return component is normally settled. The depreciation rate is also settled. So, I mean we don’t – we have got the $56 million of – that we are seeking right now that is the filed for request. I mean we are – the best target that you can have for your model I think is to look at the $100 million to $125 million that we targeted for fiscal ‘16 that we are at $71 million now and we are very confident and comfortable that we will reach the target that we have provided. I mean as we get closer through the next two quarters you will see those amounts will continue to materialize and as they become final we make them immediately available so you can get them into your model. Faisel Khan Got it, okay. It makes sense. Bret Eckert If you look at slide 27 you will see a detail of each of those mechanisms by state, by jurisdiction. Faisel Khan Yes. No, I see it. I was just wondering, are you in for like for example, I guess for the Mid-Tex cities sort of are they RRM, like is that $26.6 million, is that sort of part of this process you are talking about where it’s an automatic sort of…? Kim Cocklin That is not automatic, but it’s pretty prescriptive. So, there is normally adjustment in the ask for that type of filing and what we achieve because that does go through some negotiation process. Mike Haefner Faisel, this is Mike. The other thing that we will see in terms of the difference between an ask and an awarded amount relates to assumptions that are made and debated around things like employee costs, how pension costs are treated in that, that at the end of the day may affect the awarded amount, but does not affect us on a net income basis at the end of the day, so. Faisel Khan Okay. And then looking at the continued rate base growth of the company going from I guess $5.5 billion to $9 billion, is there anything that would sort of cause that growth rate to slow for any which reason, I just want to make sure also is the deferred taxes and the implementation of the new tax laws, is that baked into that number too? Bret Eckert It’s fully been contemplated in all of our numbers, yes. Kim Cocklin You will be the first to know, Faisel. I mean we take that commitment extremely seriously. We have advertised that we are going to grow rate base at 9% to 10% which we absolutely have to do to meet the commitment of growing earnings at 6% to 8% on average. So I mean we have built up what we hope is a lot of trust and credibility with our shareholder base and with the street and we take that as seriously as the dividends. So if there is ever any change to that and if there is any retraction or reduction to the growth rate that we see, which we don’t see for the next 5 years and we have got a very good financial strategy to back up the investment for the next 5 years and we will continue to increase that. So we are very confident and again, we can’t overemphasize the fact that we are not just advertising these rates at 6% to 8%, we are actually performing and throwing them off and we have got over a 5-year track record of meeting that commitment. So we fully expect to do it. And we understand how important it is to message any change as soon as it becomes available. So we are not going to hide the ball on anything like that. Faisel Khan It makes sense. Thanks guys for the time. I appreciate it. Kim Cocklin See you Monday. Faisel Khan We will do. Operator The next question is from Charles Fishman with Morningstar. Please proceed with your question. Charles Fishman Good morning. You lowered the – you narrowed your guidance, but you lowered the upper end of your guidance, $3.40 to $3.35, yet the upper end of regulated operations stayed the same, the upper end of non-regulated operations stayed the same, share count stayed the same, can you explain to me your thinking on that of how you go about doing – or why you did that, lowered the upper end too? Bret Eckert Well, when you tighten guidance, Charles right, I mean you have got to move the upper and the lower end. The midpoint of our guidance is still the $3.30 that remains unchanged, which is about an 8.2% growth rate over the $3.05 weather adjusted operations for fiscal ‘15, so it was just a matter of coming in six months into the year when 70% to 75% of your earnings are behind you and providing a bit tighter of a range of guidance for the street. Charles Fishman Okay. So you are not – I see what you are doing, you are focusing on the midpoint and then just assuming a variance from that. Got it, okay. That explains that… Kim Cocklin We are also trying to focus on trying to help you tighten up your model. Charles Fishman Thank you. That’s always appreciated. The next question follows up tightening up the model, effective tax rate went down – guidance on effective tax rate went down 100 basis points, can you provide a little more color on that? Kim Cocklin That was Trump hew was – because he is the Republican nomination. Charles Fishman Okay. Kim Cocklin It’s just – really just the ebbs and flows you see in a year plus there was a new stock compensation standard that was adopted and that impacted tax rate – effective tax rate a little bit. And you will see that disclosed in the 10-Q. Charles Fishman Got it, okay. Thank you very much. Good quarter. Operator [Operator Instructions] The next question is from Mr. Mark Levin from BB&T. Please go ahead. Mark Levin Hi guys. Hope you are doing well. Two very big picture questions, the first has to do with something that I am sure is not envisioned by many at this point with natural gas prices around $2.10, but is there a point at which – or is there a gas price at which you could point to or maybe theoretically come to whereby regulators would be less inclined to be as constructive as they are. Put another way, is there a natural gas price point where the customer starts to feel it in a more material way and the regulatory environment might not be quite as accommodative as it is today? Kim Cocklin I mean you can hypotheticate all you want on prices for sure Mark, but we haven’t picked a price point. We do anticipate with our 5-year plan of having an all-in – we have assumed an all-in gas price of $4.50, $4.50 to $5.50 through 2020, which if you look at the forward screen, I mean that is clearly within the realm of reasonableness and even conservative. So there are some other factors. The cost of money is another thing that’s helping the investment and along with gas prices, the customers are not expected to experience any increase in the bills that they have paid since 2007. So I mean we really haven’t run the what-if scenario on that. We pay obviously, very close attention to gas prices and are able to do some things as a result of working with the regulators to hedge positions so that we are usually 1 year or 2 years ahead of all the price changes. Mark Levin Sure. So to me it sounds like – even if it were I think we are – gas would have to do something monumental – have to be monumentally higher? Kim Cocklin It would have to be like $8 to $10 I think. Mark Levin Yes, right. So a completely different schematic. And then the second question, because you can’t get off an LDC call without asking the M&A question, but maybe I will approach it from a different way, are you seeing any opportunities – obviously, your equity has risen magnificently and for good reason, but you do have an equity currency, the cost of debt is relatively cheap – is very cheap actually. Are there opportunities out there as a buyer, now I realize going and trying to buy an LDC and finding a cheap LDC at this point might be challenging, but are there any other opportunities out there that you guys are considering or would consider given the strength of your equity and the cost of debt? Kim Cocklin We pretty – we have been very consistent in emphasizing the fact that we think multiples are extremely expensive, you never say never. But there is nothing on the block that we would be interested in paying over and above or even close to what’s going off the Board today, if you look at our investment of $1 billion to $1.1 billion of capital every year, that with the regulatory lag that we experience with 94% of that investment beginning to earn within six months at the end of the test period, that $1 billion to $1.1 billion that we are putting in the ground is helping us on this journey of becoming the nation’s safest utility, so it becomes immediately accretive. You don’t have the integration issues if you go out and overpay for an asset which you are doing right now. You have regulatory issues and complications of dealing with what you pay over book, how you deal with goodwill, how you integrate a culture, you do the systems. I mean there is a whole host of issues, social issues and financial and operational issues, when you buy an asset. I mean we did that, we have a wonderful asset – we have a wonderful portfolio. We are in jurisdictions where we want to be. We are extremely comfortable with who we are. We know who we want to be. We have got wonderful skill sets. And so we don’t really have to look across the landscape. And I think bet the future on trying to integrate an asset under the current market conditions. Mark Levin That makes perfect mix, absolutely perfect sense. And is your – just when you think about the industry as a whole and you put your sort of crystal ball on – head on and think about the next 6 months to 12 months, is your expectation that we will continue to see more deals or do you think that there will be a pause given the run in the equities? Kim Cocklin No pause. There is going to be more deals. I mean you have got people out there that supine gas is a very attractive story. They want to get it in their portfolio if they do not have it right now and natural gas. Obviously, it’s the future for energy in this country. I mean energy is a very fundamental food group of a healthy economy. Once we get past November and the elections I think with where gas prices are and where exploration efforts are in the country and the ability – it’s an affordable all-American product. So it makes all the sense in the world and there is good reason I mean I don’t think – I think the multiples are going to stay where they are at in this space as well, because I think interest rates will probably remain very low, but I think people are seeing a lot of value right now and continue to see value in natural gas. Mark Levin That all makes sense, congratulations on a great execution. Kim Cocklin Thank you, Mark. Operator There are no further questions at this time. I would like to turn the floor back over to Ms. Susan Giles for closing comments. Susan Giles Thank you, Selena. I just want to say thank you for calling. A recording of this call is available for replay on the website through August 3. And we hope to see many of you at the AGA Financial Forum in a couple of weeks. Thank you again for your interest in Atmos Energy. Bye-bye. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Star Gas’ (SGU) CEO Steven Goldman on Q2 2016 Results – Earnings Call Transcript

Star Gas Partners LP. (NYSE: SGU ) Q2 2016 Earnings Conference Call May 05, 2016 11:00 AM ET Executives Chris Witty – Darrow Associates, IR Steven J. Goldman – President and CEO Richard F. Ambury – CFO, EVP, Treasurer Analysts Andrew Elie Gadlin – Odeon Capital Group George Schultze – Schultze Asset Management Operator Hello, and welcome to the Star Gas Partners Fiscal Second Quarter Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Steven J. Goldman, Star Gas Partners Chief Executive Officer. Please go ahead. Steven J. Goldman Thank you. Good morning, and thank you for joining us today. With me today is Star Gas’ Chief Financial Officer, Rich Ambury. After some brief remarks Rich will review the fiscal second quarter ended March 31, 2016. And we will then take your questions. But before we begin, Chris Witty of our Investor Relations firm, Darrow Associates, will read out the Safe Harbor Statement. Please go ahead, Chris. Chris Witty Thanks, Steve, and good morning. This conference call may include forward-looking statements that represent the Partnership’s expectations and beliefs concerning future events that involve risks and uncertainties that may cause the Partnership’s actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the Partnership believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Partnership’s expectations are disclosed in this conference call and in the Partnership’s quarterly reports and annual report on Form 10-K for the fiscal year ended September 30, 2015. All subsequent written and oral forward-looking statements attributable to the Partnership, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the Partnership undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this conference call. I’d now like to turn the call back over to Steve Goldman. Steve. Steven J. Goldman Thanks, Chris. First and foremost, I’d like to begin by mentioning how challenging this quarter was due to the extraordinarily warm weather. Last year we had the opportunity to show how well we can perform during very cold weather. Our organization then shined, and we posted record results. But every year, as you know, stands on its own. It should come as no surprise that at the start of each year, our greatest concern is that winter will not provide us the normal cold temperatures we expect and need to perform well. This year, given the circumstances, we needed to demonstrate strong control and the ability to perpetually adjust our plans, as each period of expected cold weather failed to materialize. Because there is always the possibility that temperatures can be rather abnormal, either way, we always plan to service our customer in the coldest as well as the warmest of environments. This past quarter was a period of intense focus and careful decision making designed to achieve the best customer satisfaction and operating results possible. And we really could not be prouder of how well our entire team managed through such challenging conditions. Star Gas continues to push forward to better itself as an organization. We used the past six months to sharpen elements of our strategy to attract and retain a broader customer base through our expanded footprint. We believe that the unusual weather and low oil price also indirectly impacted other aspects of our business. So lack of severely cold weather gave customers less of a reason to leave their current provider and seek higher levels of service we’re known for. And the lower cost of oil gave rise to many extra low price teaser offers in the marketplace, as many competitors became extremely aggressive to try to lure new customers. Under these circumstances, we retained our margin discipline, but attrition did suffer. That said, we continued to work on creating stronger, longer lasting relationships with our customers to help minimize results like this in the future. We are also redoubling our territory expansion efforts, both by organically growing our base, as well as pursuing attractive acquisitions. In addition, we continue to emphasize efforts to broaden the service related area of our business. We see the growth of such services as key to our future success in areas like plumbing, natural gas service, air conditioning, and home security. In the past, these were primarily relationship enhancements to our current fuel customers, but we now see them as revenue opportunities external to our existing account base. We are examining and testing various ways in which to ensure a more durable long-term relationship with homeowners; one that covers a broad spectrum of offerings from propane and home heating oil to these ancillary services, which at times are counter-seasonal to our main business. So while these past six months certainly caused us to adjust some plans for the remainder of this fiscal year, we will not abandon our efforts to enhance our customers’ experience and strengthen Star Gas’ overall performance. The warm weather, which had a negative impact on volume and revenue, drove home the importance of our plans to expand Star’s geographic footprint and the range of service offerings. We are more determined than ever to position our organization for better results going forward by focusing on ways to grow the customers we serve and the ways we serve them. Lastly, Star Gas recently announced that it raised the quarterly distribution to $0.1025 per unit. Based on our never-ending effort to strengthen the business and shareholder value, we believe this increase is part of a rational approach consistent with current and future cash flow expectations. With that, I’ll turn the call over to Rich Ambury to provide some comments on the second quarter results. Rich. Richard F. Ambury Thanks, Steve, and good morning, everyone. For the quarter, our home heating oil and propane volume decreased by 53 million gallons, or 25%, to 157 million gallons as the additional volume provided by acquisitions was more than offset by the impact of warmer weather, net customer attrition, and other factors. Temperatures in Star’s geographic areas of operations for the second quarter were 26% warmer than during the prior year and 12% warmer than normal. The warmer temperatures were a continuation of the weather patterns experienced during the first quarter of fiscal 2016. Also, as a reminder, the second quarter of fiscal 2015 was 19% colder than normal. Our product gross profit declined by $59 million, or 24%, due primarily to the decline in home heating oil and propane volume. Delivery and branch expenses decreased by $16 million, or 15%, as an acquisition-related increase of $3 million was more than offset by a reduction in the base business of nearly $19 million. In the second quarter of fiscal 2016, we recorded a non-cash credit of $14 million for our derivatives. In the prior-year’s comparable quarter, we recorded a similar credit of $13 million. Interest expense decreased $2 million, the result of refinancing $120 million of 8.875% debt with $100 million term loan that was at lower variable rates last year. We posted net income for the quarter of $55 million, or $21 million less than the prior-year period. Adjusted EBITDA decreased to $89 million, down $39.0 million, or 31%, as lower operating expenses were more than offset by the decline in volume driven by 26% warmer weather. For the first half of fiscal 2016, our home heating oil and propane volume decreased by 80 million gallons, or 25%, to 237 million gallons, again, as the additional volume provided by some acquisitions was more than offset by the impact of warmer weather, net customer attrition and other factors. Temperatures in our geographic areas of operation for the first half of fiscal 2016 were 27% warmer than last year’s comparable period and 20% warmer than normal. Our product gross profit declined by 22%, or $82 million, as higher home heating oil and propane margins were more than offset by the decline in home heating oil and propane volumes sold. The continued decline in home heating oil and propane product costs contributed to the expansion in our per-gallon margins. In delivery and branch expenses, we recorded a $12.5 million credit under our weather hedge contract. Outside of this, delivery and branch expenses rose $6 million due to acquisitions, but was reduced by $24 million in response to the warmer weather. Again, we recorded a non-cash credit of $9 million for derivatives. In the prior-year’s comparable period, we recorded a similar credit of $4 million. Interest expense decreased by $3.5 million, again, due to the result of the refinancing that I previously mentioned. We posted net income for the first half of fiscal 2016 of $67 million, or $24.0 million less than in the prior-year period. Adjusted EBITDA decreased to $125 million, down $48 million, or 28%, as the impact of higher home heating oil and propane per gallon margins and lower operating expenses, and the $12.5 million credit recorded under our weather hedge contract was more than offset by the decline in volume driven by 28% warmer weather. Now looking over at our balance sheet, at the end of the quarter, we had cash on hand of $147 million, zero borrowings under our revolving credit facility, and $97.5 million of long-term debt. While we were obviously disappointed with the warm weather, I would like to point out one interesting statistic. For the 12 months ending March 31, 2016, we generated $92.3 million in adjusted EBITDA during a period in which the winter temperatures were 20% warmer than normal. If this had been our year end, this would have been our third best year ever. And with that, I’d like to turn this over to Steve. Steven J. Goldman Thanks, Rich. At this time we’d be pleased to address any questions you may have. Operator, please open the phone lines for questions. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions]. The first question is from Andrew Gadlin with Odeon Capital Group. Please go ahead. Andrew Elie Gadlin Hey, good morning gentlemen. Richard F. Ambury Good morning Andrew. Andrew Elie Gadlin I was wondering if you could talk about some of the acquisitions you announced in the release, that there are two small acquisitions. Richard F. Ambury Yes, those were the same acquisitions that we announced in the first quarter. One was primarily a heating oil business, and another one was in the — down on our southern area and was in the propane business. Andrew Elie Gadlin And could you talk a little bit about valuation? Richard F. Ambury We’ve always said that when we make acquisitions, we try that they’re between 3.5 to 4.5 to 5 times EBITDA. Andrew Elie Gadlin And it was in that range again? Richard F. Ambury Yes. Andrew Elie Gadlin Okay. Thank you very much, gentlemen. Richard F. Ambury Okay. Operator The next question is from Mr. George Schultze with Schultze Asset Management. Please go ahead. George Schultze Hello, gentlemen. How are you? Richard F. Ambury Good George, how are you? George Schultze Good. Thanks for taking my call. I was curious, just looking at your financials and your run rate, LTM run rate of revenues and EBITDA. And I was looking at the June and September quarters of your performance last year. Richard F. Ambury Right. George Schultze For June of 2015 and September. And as you know, those two quarters you had somewhat negative EBITDA. I guess it’s a pretty seasonal business. Do you expect a similar trend this year, or would you expect with the acquisition that you swallowed last year, towards the end of the year to have less negative EBITDA going forward during the off months? Richard F. Ambury Well, we’re not going to project what we anticipate for the next six months. But we are primarily currently a heating oil company. And we generate the majority of our EBITDA, and more than our annual EBITDA in the first six months. And the last six months have always been loss EBITDA, adjusted EBITDA for us. To a certain extent, if we make a heating oil acquisition and we grow the business, the summer losses actually could uptick a little bit as well. George Schultze So you would expect as the business gets larger, that you’ll have even more negative loss or negative EBITDA. Richard F. Ambury That’s — we’re not projecting that, but that’s something you could probably expect, yeah. George Schultze Okay. And in terms of guidance going forward, I know that you generally don’t provide that. I’m not sure why because most companies do these days. But through the end of this year, since we’re already near — it’s just a couple months now to finish the September year — would you expect a similar drop off versus what you’ve had versus last year so far? Or does some of that hedging contract that you had in place, do you expect that some of that will help offset the drop off that we’ve seen due to weather? Richard F. Ambury Well, during the six months, we recorded a $12.5 million credit under our weather hedge contract. We did receive the cash for that. And we don’t have any weather hedge for April through September. George Schultze Okay. So I guess the follow-up question to that then is there anything that can be done at the business to reduce costs even further during these off quarters, in light of how you’re running versus how you were running last year? Steven J. Goldman Well, first let’s start with the last year was an extraordinary unusually unexpected high profit based on the very cold weather, which is certainly not normal, and a declining oil price market, which is relatively not usual as well. So comparing to last year, our normal trends aren’t going to ever follow that unless we have successively very cold years in a row. We always look to counterbalance decreased profitability in the early part of the year, if we’re off where we expect to be internally, with looking at other additional expense cuts or other changes that could help offset that. We are certainly looking at those. How well will they translate into reductions in expense? Depends on a lot of circumstances. There is a weather component of the summer as well that we’re yet to understand how that will unfold. We do a lot of air conditioning service and installation work, and a very hot summer could be opportune for us, and could drive some expense, but some additional net profit. Or if it’s a milder summer, we may be cutting more expense and have less profit than we would hope to have during that period. But we will be working on controlling and reducing expense, certainly, to the foundation of your question. George Schultze Okay. Question about net customer attrition. How were those trends falling this quarter? I didn’t see them in the release from yesterday. Steven J. Goldman They are trending worse than last year for the same period. George Schultze What were the percentage changes? Richard F. Ambury Well, we lost 1.2% of the business this year in the second fiscal quarter. And in the second fiscal quarter of 2016, we lost a net 0.5%. George Schultze Okay. All right, thanks. And I just have one last question. Thanks for taking my questions. It looks like on the balance sheet you have almost $150 million of cash now, if I’m reading it correctly. What can be done with that cash to make it more productive for the benefit of shareholders? Steven J. Goldman We are — one thing that we are working on as always, we are in discussions with several acquisitions. And we are hoping at least some of them in the coming months we’ll be able to execute on. And that — to us, that’s one of the best uses of that cash, as we always say. Because not only do we try to buy stuff that’s accretive to the business that’ll give return, but it also strengthens the durability of the business for the long-term investor. We are also looking at some other smaller things that we can do. Rich. Richard F. Ambury And when you look at the cash we have about 37%, 38% of our customers are in a budget payment plan. And to a certain extent they really — they paid a little bit more into that plan this year because of the 20% warmer weather. In addition to that, we had significantly declining cost of product. And if cost of product went back from let’s say $1.20 to $3.25, there would be a significant need for the equity cash that we would have to supply for the increase in our receivables. So we’re enjoying — to a certain extent, we’re enjoying a benefit of abnormally low receivables due to one, warm weather; two, customer credit balances; and three, low prices. George Schultze Okay. Is the stockholder or the stock repurchase plan, is there any active stock repurchase plan, or has that expired or been fully expensed? Richard F. Ambury It’s still active. George Schultze I’m sorry. You said it’s still active. I forget what the size of it, if you could just clarify, and then I’ll be out of the queue. Thanks again for all the questions here. Richard F. Ambury Sure. The balance is — let me just look it up for you. We got about 2.2 million of share, or units, rather, that we can still repurchase. George Schultze Okay. Thank you. Steven J. Goldman You’re welcome. Operator [Operator Instructions]. There are no more questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Goldman for any closing remarks. Steven J. Goldman Thank you. Again, thank you for taking the time joining us today and for your ongoing interest in Star Gas. We look forward to sharing our third-quarter 2016 results with you in August. Operator The conference has now concluded with this. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!