Q3 2020 Superior Plus Corp Earnings Call
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<unk> said, Mr. Rob Doran, Vice President of Investor Relations and Treasurer. Thank you. Please go ahead.
Thank you Joe and good morning, everyone and welcome to superior part of this conference call and webcast to review our 2023rd quarter results.
Speakers on the call today will be to HR, then president and CEO and Matt sorry.
Executive VP and CFO today's call is being webcast, we encourage listeners to follow along with the supporting presentation, which is also available on our website.
This morning's call Luke in basketball begin with their prepared remarks.
We will open up the call for questions.
Before I turn the call today I'd like to remind.
It is some of the comments made today, maybe forward looking in nature and are based on superior its current expectations estimates judgments projections and risks further some of the information provided refers to non-GAAP measures. Please.
Please refer to superiors third quarter Mdna posted on SEDAR and superiors website yesterday.
Today for further details on forward looking information and non-GAAP measures I.
I would encourage listeners to review the Mdna as it includes more detail on the financial information for the third quarter as we won't be going over each financial metric on todays call. This will allow it to move more quickly into the question and answer period.
I'll now turn the call over to live.
Oh, Thank you Rob and good morning, everyone. Thank you for joining the call third quarter. The month of October we're busy for superior from a business development and M&A activity perspective in July we issued preferred share to Brookfield and received 260 million us.
As seen on the transaction.
We used the net proceeds from preferred share to pay dollar credit facility and then we make to retail propane distribution acquisition in the quarter Calpine and Ryan.
It is a well run retail propane distributor delivering over 40 million leader residential commercial cost.
Brimmer in the main the acquisition of Ryan was a large transaction with annual sales of over 200 million liters, and New Hampshire, Maine, Massachusetts, Burbach, both acquisitions of significant synergy opportunities, which are expected to reduce the valuation multiple an increase of dissipated to return.
And.
Tougher we acquired two additional retail propane businesses, one in southern California, and one in the North Carolina. These two acquisitions were smaller in size by this still expected to generate good returns for superior. We've so far in 2020, we have made our acquisition total touch durations of.
Approximately 290 million or one of the leading North America, the D., leading North America retail program in car and consolidator of this highly fragmented industry.
We continue to see many opportunities to grow through acquisition and the east USA and the California.
In the West Coast, we have a raucous robust acquisition pipeline and we expect it will be more acquisition of port Cdcs coming out of the economy slowed down as many smaller mid sized retail propane distributor company may be challenged by the increased cost of new business coming out of the Pandemics.
In relation to.
Third quarter financial operating results, our third quarter, adjusted EBITDA was 39.3 million 9 million or 19% lower than prior year quarter revenue due to a decrease in EBITDA from operation and higher corporate costs. So third quarter is typically our lowest quarter due to the lack of heating demand.
The summer months overall the results were in line with our expectation considering the challenges we face due to the impact of COVID-19, the weaker economic activity and the impact of reduced oil and gas drilling activity in Canada, and then to us.
Our dedicated workforce of over 4000.
Stories continue to serve our customers, while maintaining safe reliable operation. During this challenging time, we continued to deliver critical energy specialty chemicals product to our customers and safely service the community in which we operate.
The resiliency demonstrated by our team.
Members from every level of the organization is me confident we will continue to execute our strategy and maintain or committed to safety and continuous improvement through operational excellence.
Our modified business practice to continue with the health and safety of our employees our customer at local.
Community of which will serve as a priority as our propane distribution specialty chemicals business are considered essential and critical services and infrastructure at all of the provinces territory phase in which we operate in the USA and Canada and Chile, We have continued to service our customers out of.
Classified is essential.
We still expect to finish 2020 with our previous communicated adjusted EBITDA range of 475 to 515 billion based on their current estimate and an expectation that the weather in the fourth quarter will be consistent with the five year average.
We have done an excellent job.
Taxi and adjusting to the decline of our sales volume related to the slowdown in the economy and the low price of oil, which enables us to maintain our adjusted EBITDA guidance for 2020.
I'm proud of our employees and our ability to respond quickly to this unprecedented situation.
We continue.
It's realized synergies from NGL, we felt the east acquisition and our recent acquisition, we still expect to exit 2020, with 24 million U.S. and run rate synergy related to NGL, along we're able to reduce our printing expense into us propane distribution business by $2.2 million in the.
During the quarter compared to their prior year quarter through workforce optimization initiative neutralizing are superior weight operating platform we.
We did lock on the Canadian propane distribution business, which we are now applying to our us business.
Third quarter EBITDA from operation was.
$45.9 million or $7.7 million, 14% increase from prior year quarter, primarily due to their lowest result of specialty chemical partially offset by our result from us propane and Canadian propane.
US propane resolved for the third quarter increased compared to the prior year quarter due.
Turning to lower printing expenses, the incremental contribution from tuck in acquisition and higher average margin is partially.
Partially was offset by lower sales volume.
You asked for it rained EBITDA from operations were 2020 to speed to be higher than 2019, probably due to incremental.
Fuel contribution from acquisitions completed in 2020, lower operating costs related to cost optimization realized synergy from acquisition completed in the last two years.
Set in part by lower volume related to the significant warmer weather experienced in the first quarter and also to some of.
Due to commercial and industrial business and impact on coal with 19.
Canadian propane result for the third quarter were modestly higher than the prior year quarter due to the decrease in operating expense, which I mentioned that last quarter. We have very many on overall cost reduction in our investor price, including the.
Impact of the Cws, partially offset by decreased average margin and sales volume.
Today's drop in EBITDA from operation for 2020 of this phase to be somewhat lower than 2019, probably due to an expected decrease in sales on your part.
Partially offset by a decrease in gold.
Operating expenses I mentioned earlier.
Sales volumes are expected to decrease due to impact of COVID-19, and reduced activity in the oil and gas and some slowdown in commercial industrial customers across kind of known us even doing us we're basically.
Retail propane.
And that does not really affected by coal business.
Specialty chemicals result for the third quarter were lower due to a decrease in sales volume of product to log prices, partially offset by a modest increase in sodium chlorate price.
The decrease in electricity costs and operating expense.
Including the impact of Cws.
Specialty chemical EBITDA from operation on the Twentys and anticipate to be lower than 2019 newest to decrease in both North Carolina sodium chlorate gross profit relate to the impact of totaled 19, and partially offset by a decrease in operating.
Expenses.
So on that I'll turn it to the call to back to discuss the financial results results in more detail.
Thank you Rick and good morning, everyone looking at the financial highlights for the third quarter, our consolidated third quarter adjusted operating cash flow before transaction other cost per share was six cents.
And your share, which was five cents lower than the pre prior year quarter due to the decrease in adjusted EBITDA, an increase in cash taxes and an increase in the weighted average shares outstanding partially offset by a decrease in interest expense.
Weighted average shares outstanding increased primarily due to the impact.
Including the preferred shares on an as converted basis as well as the impact of the shares issued through the drip, which was suspended following the dividend payment in June 2020.
Interest expense decreased primarily due to lower average interest rates on our variable rate debt and lower average debt level average debt levels during.
The third quarter were lower than the prior year quarter as the proceeds received from the preferred share investment from Brookdale were used to repay our credit facility debt.
Superior had a consolidated net loss of $21.4 million compared to a net loss of $59.3 million in the prior year quarter, primarily.
Turning to an unrealized gain on derivative financial instruments compared to a loss in the prior year quarter and lower EPS DNA costs in finance expenses, partially offset by lower gross profit.
Turning now to the individual business results Canadian propane EBITDA from operations for the third quarter was.
21.6 million, a point 7 million increase compared to the prior year quarter, primarily due to lower operating expenses, partially offset by lower adjusted gross profit.
Operating expenses were 15.9 million lower due to a decrease in employee related expenses, including the impact of the FIDA.
With the U.S. as well as cost reductions in response to lower sales volume.
Adjusted gross profit decreased compared to the prior year quarter, primarily due to lower sales volumes and weaker wholesale market fundamentals.
Average unit margins were 16.4 cents per liter compared.
18.4 cents per liter in the prior year quarter. This is due to weaker wholesale propane fundamentals, which have returned to historical market trend.
Total sales volumes were 341 million liters, a decrease of 52 million liters or 13% primary.
Primarily due to reduced demand.
Wholesale oilfield commercial and motor fuel segment.
Turning to us propane the U.S. propane EBITDA from operations for the third quarter was negative $4 million, an increase of $3 million compared to the prior year quarter. This is primarily due to lower operating expenses incremental cost.
Confusion from acquisitions completed in the last 12 months.
And higher average unit margin, which was partially offset by modestly lower sales volume.
Operating expenses were $2.2 million lower than the prior year quarter due to cost reductions related to workforce optimization initiatives and realized synergies from acquisitions.
Yes.
Average unit margins were 36.4 cents per liter compared to 34.7.
34.7 cents per liter in the prior year quarter, primarily due to effective management of pricing in a low commodity price environment the impact from the translation at us denominated gross profit.
And to a lesser extent customer mix related to a focused on organic growth and higher margin propane customers' tone.
Total sales volumes decreased 3 million liters, or 2%, primarily due to the lower commercial and wholesale volumes, partially offset by higher residential volume.
Turning now to specialty chemicals.
EBITDA from operations in the third quarter with $28.3 million and $11.4 million decrease compared to the prior year quarter, primarily due to lower gross profit, partially offset by lower operating expenses.
Gross profit decreased due to lower.
Where else why sales prices and volumes and lower sodium chlorate sales volume, partially offset by higher sodium chlorate sales prices and modestly lower electricity memory.
Operating expenses decreased primarily due to lower employee related expenses, including the impact from the Cws.
Lastly, the corporate results in the adjusted EBITDA in leverage guidance.
Corporate costs were $7.1 million, an increase of 3.2 million compared to the prior year quarter. This is primarily due to higher L tip expense related to the share price appreciation.
Interest expense was 22 point.
$5 million, a decrease of 4 million, primarily due to lower average interest rates on variable rate debt and lower average debt levels.
Interest rates on variable rate debt were lower due to in interest rate cuts by the bank of Canada and the federal reserve in 2020.
In the third quarter superior.
Had cash income tax expenses of 4.1 million, a 1.6 million increase from the prior year.
We expect to finish within our 2020 adjusted EBITDA guidance range of 475 million to 550 million based on our year to date results and our current estimates for the fourth quarter.
Sorry average weather as measured by degree days for the fourth quarter is anticipated to be consistent with the five year average for Canada and the U.S.
The low end of the range accounts for warmer than normal weather for the remainder of 2020 further weakness in economic activity in Western Canada further weakness in north.
Eric and caustic soda and hydrochloric acid market and any further volume decline related to COVID-19.
The high end of the range accounts for colder than normal weather for the rest of 2020 wholesale propane market fundamentals similar to 2019 increased drilling activity in Western Canada improved north.
As of American caustic soda hydrochloric acid market and a faster recovery from the co mid 19 pandemic.
From a debt and leverage perspective, the total debt to adjusted EBITDA leverage ratio for the trailing 12 months as at September Thirtyth 2020, with 3.4 time.
Our third to 3.7 times at June Thirtyth, 2020, and within our long term target range of three to three and a half time.
The decrease in the leverage ratio from June Thirtyth was primarily due to lower debt levels and higher pro forma adjusted EBITDA.
We still expect total debt to adjusted.
EBITDA leverage at December 30, Onest 2020 to be in the range of three to three and a half time, albeit at the higher end of the range due to our recent acquisition, which were financed financed primarily using the credit facility in deferred consideration.
With that I'll turn the call over for acuity.
Thank you.
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[noise] I show. Our first question comes from the line of David Newman from that's you know that's Jody.
Uh huh.
Oh Geez, you're done good morning, one morning, or how are you.
Got it and I know, obviously still very early [laughter] I think you do [laughter] Ah. So in terms of guidance you expect to be in the range, but you previously guided to the low.
So the range, so I would I would assume with rhymes and the other deals we're probably more near the middle of the range now is that the face of it yeah. That's great. Yeah, that's a reasonable expectation yep, Okay, and then on the wage subsidy or you had you had a 17.6 million in the quarter and any expectation that you'll receive any.
And then the fourth quarter.
So we're going to continue to evaluate the impact of COVID-19 on the business and the change in regulation. So we will assess the companys qualification for the additional cws subsidies and I wouldn't say based on the current ratings, we expect that there there would be some.
We haven't done the detailed work so at this point it isn't clear when and if we would file but if we did the deadline January 30 Onest 2021.
I would think about some but less right like it's going to be less than what you got because of the changing regulations right. We do expecting based on the current right.
But that there would be some yeah, okay very good and then on the operating expenses. Obviously, you did a great job there and Luke I think you called out 30 million.
You had had a little bit more in New York in the U.S. that you're looking at in terms of optimization I think you previously called <unk> like 10 to 11 million being permanent has that.
Change in terms of the permanent CEO, the Oh the cost savings.
For.
No you know, we have less volume and and others.
Vehicle business.
And we don't know when this comes back to fully be more busy third quarter is probably mid year 2020.
Wattenberg or to forecast that but we do have another project of specialization and cost structure and well.
In the fourth quarter, we will look for 2021 additional costs demand reduction.
I know right now it's at least 5 million.
And probably looking.
For more than that as we finish our work.
Oh, and I would would that be would that be sort of a median or it would be kind of a spread across 2021 loop spread across 2021, Okay 5 million annualized correct, Neil will be sustainable and other onetime.
Okay, and then just overall on propane.
Okay and last question just on obviously the basis spreads have come in and the all in Canada on the wholesale side and similar to the U.S. you know the effective margin management you had from price increases followed by our a rollover wrapped in a rack prices. It's obviously narrowing any sense on as we head into.
The fourth quarter, what the margins might look like a visa the I guess the third quarter.
Yeah, we would expect from a Canadian propane perspective.
Historically, the differential the impact would be roughly or what we've been seeing is roughly two cents.
So the reality is I think going forward the best way to think about it is Q4 will look similar to Q3, which is a return to normal differentials are the normal market would look like market fundamentals.
So less than what you would have seen in 2019, which they were they were more road.
Robust at that point.
In the US we would also see going forward on some additional pressure and currently if you want to think about the U.S. propane margins.
You know roughly.
Two person or two cents on a 36 cents would be margin management.
Would encompass sort of that rack price discussion that you're having so from that perspective.
We would expect 25 to 30 cents U.S. or 34 to 41 CAD for Q4 with the foreign exchange rate of roughly a 1.3 so.
No.
Before going one.
I'm sorry, 34 to 41 is like you said Canadian is up.
Yeah, Yeah yeah.
Within the range there.
Yeah, I'd say, some words sort of consistent with where it is now so not the lower end of the range closer to where you are seeing Q3 would be our okay.
Okay look you're gonna yeah, yeah.
Well when we say we're going to do the tradition, a little over a range. We've included those numbers you.
And for the year.
Pricing.
Excellent yes.
Got it so a great quarter guys. Thanks, Thanks, a lot appreciate it.
Okay.
Thank you our next question.
Comes from the line of Ben Isaacson from Scotiabank. Please go ahead.
Thank you and good morning.
Just a couple questions on M&A can you talk about.
Plans or strategy to get the specialty chemicals business kind of back to a growth profile I know.
No you conducted a strategic review I guess you started at June 19, and you concluded no sale I think it was January of this year, but obviously, there's been a lot of changes.
To the outlook since then structurally.
What do you think that the business right now and is it something that you are willing to reconsider doing a strategic.
You want or is there opportunities to do bolt on.
Positions. Thank you yeah, no. Good question and I, certainly don't want me doing the acquisition and the specialty chemicals and one of the key Pollard cash for Durzy DRONCO.
Good time, we buy one and the recent one we see a 25%.
Some other line improvement so our money from a M&A point of view, we'll go there.
For coal.
Yeah, we're a tougher.
So for year round with Ah oilfield, you asked which is a good market for us and.
The only other paper as you can see it's not a big percentage of that.
Oh, great papered, 7%, but office.
Offices, and long term and not using a lot of previous year. So it's kind of a rougher time for the volume of vertical and they'll probably be like that for six months into the ring or so and then we'll see.
Come back to tether normalize over there.
Five to 10 years, so they are resolved.
So for the moment.
We're not anticipating organizing in the sales process.
We really look at selling its one day down the road, we do get in calls and sometime its looks interesting and we communicate of course with people when its was.
Theorist buyer that wants to give us a call and then do you know how the dialogue about our goal, but no big process until we go back to more normalized EBITDA, which was probably.
12, late 2021, or 2022 will be come through that.
Yes.
Sure and London, and one thing that I would flag. We are currently in the pros that of doing some internal projects that would result in expansion of the business and that we would have talked about this in Korea quarters, but some expansion work and Valdosta plant in the Buckingham platinum.
As well as somewhere.
And around some of our intellectual property around here not a very good point, because we did close a high cost synergy costs Western Canada plant and we are taking the two plants. Some of these codes Buckingham involved us from Buckingham should be finished this month and we're going to be able to produce the vault.
Working we had on the west coast at much lower cost cutting 2021.
Electricity costs is 70% of variable cost and Lori and those.
Lots on the profitability to produce more and go Linda fucking unplanned and then those those will probably be.
It's not finishing this year will be in 2021 that the work will be finished to again produce low rates are lower cost for the years to come.
Great. Thank you and then my follow up question was or is it.
It's been about two plus years since the NGL acquisition, and obviously you've done a lot.
It was small tuck ins since then.
Brookfield in your corner do you think about doing some big transformational acquisitions, the size or slightly smaller than Ngls or are you just focused on the tuck ins going forward no you're right. It was pretty good sites you know.
And with that I would say.
Submitted bids hardee's acquisition and we have a.
The pipeline thats going to be bigger than I've ever seen since we start to do acquisition and propane.
And no. We we are open to look at whatever is available for sale when they come due theres more now because the market a lot of people.
All of those succession to getting older. They say hey, you know what.
It's like there's there's a change around the world on the people are saying well, maybe it's time I guess, though.
With a bit more of that but no. We will not to we will I should say, we will look at every type of deal the small medium or large.
To come available we're convinced after all those years of work and the superior way of their digital execution that we could buy any one of the large media maybe more small.
Player and propane mainly in USA and improve them tremendously so we're our own.
On the hunt to find acquisition.
Are there.
Valuation differences between the large and the small guys is there any premium.
Yes, you have the bigger while Briggs do bigger synergy [laughter], good, but usually pay more for all youve been left.
Well, we recall mid gem and you pay more for the large one but large one when you have more synergies. So when the overlap you get a lot more synergies.
That's helpful. Thank you so much.
Thank you I.
Your next question comes from the line of Steve Hansen from Raymond James.
Please go ahead.
Right.
Oh, Yeah. Good morning, guys, just a simple one on the M&A side, if I may I noticed that some of the MLP in the U.S. One in particular is trimmed their dividend lately or distribution with the idea of shoring up the balance sheet and returning to growth have you started to see any more competitive dynamics showing up.
The M&A environment I know you are suggesting that the opportunity is extremely long lived I'm just trying to get a sense, where the competitive environment is moving higher but it's much the same thanks.
No a D. A pipeline we have today you look at the bigger deal or just small one we don't see any of the MLP.
Out the door or competing with us.
No okay.
No.
That's great I, just one follow up by me on the chemical side. If you could just speak to sort of the pricing dynamics, you're seeing on the core alkali side, we will see the benchmark prices of course, but just maybe remind us how those things.
You next or foreseen through the final quarter of the year and entered into early next year, particularly on that.
On the <unk> website, thanks Yep.
Point Comm I'd say, a wage as pricing is modestly higher hcl pricing is down and the car think pricing is.
Well.
Just maybe little worse, its not changing what we've seen in the last month, a little bit more volume on caustic and usually when the pollen into starts to move positively price increase follows and you know those are the type.
Type of product by caustic when they move like attacks I submit.
If the increase we don't see the price increase, but we see a bit better volume.
On the CLO rate were no. Good position, we're usually at this time of the year, we have 20, 30% over volume, we need to redo, where I've less than 10% to fill up or plans for 2021.
Pricing is a very good and we have a reduction in the energy cost. So we're in good shape and closure rate for next year.
That's great appreciate the color guys. Thanks.
Okay.
Thank you.
Your next question comes from the line of no C. and G. from.
RBC capital markets. Please go ahead.
Great. Thanks, and good morning, everyone.
So just a follow up on Steve's question.
In terms of on especially chemical side, we've seen.
Lower both lower chloride and Chlor alkali volumes for the past.
Last year, but it was obviously accelerated down due to cover it but have you seen volumes Troughed, then Q3 or or how they try to Q4 or are.
Are you expecting a bit more weakness.
Let me go first yeah, Yeah, I think I think overall, if you want.
Think about it from a volume perspective compared to what we saw last year I think our assumption would be in Q4, you'd still see modestly lower volumes and basically all of the product, but that being said our assumption would be in particular in the chlor alkali side that we would have.
Seen it troughing at least for a lot of the products in Q3, and then some very modest growth in it smoothly growing as the economic activity picks up.
From put like as COVID-19 recoveries occur.
So that would be our view I think Q4 is a little bit more of a stable.
And then potentially starting to pick up in 2021, but mostly the pick up in 2021, our assumptions would be as you hit certainly the second half.
Okay. So just.
So if I heard right like from an absolute volume basis.
Q3 is probably.
The way the trough and then Q4 is it could take it could tick up a bit but still lower year over year, Yes, Q4 lives that are already and they're not here.
We believe the thinking that next year, we'll start to see a large.
Some good signs of improvement in pricing.
Yeah, and just just to clarify that for the whole like I was providing year over year data, we would anticipate our hcl volume would would improve moving into Q4 from Q3.
Okay got it.
And then just the next question relates to the.
The wage subsidy that you guys mentioned earlier.
In terms of the 18 million or roughly 2 million received during the quarter.
How should we think about that.
That impacting EBITDA for the quarter like I presume they wouldn't have been a straight.
Uh huh.
One for one impact for on the EBITDA or what have been some type of Oh.
I would say inefficiencies, but could you just talk about how like if you haven't received 18 million I presume. Your EBITDA would have declined by 18 million, but can you just give some color there.
Yeah, he's taken the.
The wage city.
Isn't it isn't for necessarily just the impact in Q3.
If you take the wage.
Wage that'd be completely out when we think about the quarter and what our expectations would have been we're.
Slightly lower from a Canadian perspective, where we were expecting some recovery from a cold mid 19, and Canadian propane and we would have in theory thought that the differentials would have remained a little stronger which day weekend, but no like overall modestly lower than what we would have been ex.
Vesting in Q3, the U.S. propane business is stronger than we initially would have potentially expected within the <unk> in the quarter on part of that being driven by the acquisition of over the last you know the acquisitions that we saw but also some much stronger margins and all that was offset by.
Some of the cobot impact again, which is much less than the U.S. because of the the smaller commercial base and then when you think of the chemicals business. The chemicals business was hit harder from the COVID-19 impact then we would have initially expected so everything was pretty much in line other.
And then the chemicals business was impacted more because that economic activity just hasn't started to recover where when we were originally looking at the year, we would have expected it to start recovering sooner.
Oh, good to put it another way so like if you if you didn't receive the 18 million.
And.
What was your how would that have impacted your EBITDA and in Q3.
Well, that's a tough question, but let's say corner Forum propane we didn't we're telling you every one that we're going to be in the Ms over guidance, So we didn't and.
The government grant for quarter, four and quarter three there was a big disconnect on the chemicals side from volume the number of people at work and then commercial and industrial So we did get affected.
Right.
Double what they were more than double what.
Direct many brands are in never pay the exact disconnected from the market and then now we're back to more normal propane situation. So.
The answer you're looking for a last this is jed.
Additional point in that regard, yes, Nelson times, that's appealing your question, if you're trying to get to what a normal.
The line Q3, EBITDA in our minds based on a typical typical year from an expectation perspective think about a normalized for Q3 in that range of 25 million.
Okay. All right. That's good I can follow up if I have any more questions.
Hi, there thank you.
25 or so.
Thank you.
I show next question comes from the line of Patrick Kenny from National Bank. Please go ahead.
Yeah. Good morning, just on your U.S. Tuck in acquisition strategy as we've seen recently certain cities in California.
And now its policies that than new residential bills from installing natural gas.
So I'm just wondering you know how you're thinking about political risk both at the state and now the federal level I guess.
Just with respect to you know potential bands on residential propane consumption over time.
Does this added.
Layer of risk either change your desired pace of tuck in activity in states like California.
Or influence the EBITDA multiple at which you're not willing to transact.
Yeah. The this.
This is probably good news for us [laughter], there's no natural gas pipeline, that's going to be built and.
Our new market and when you think of electricity we've done some research on natural gas and we do that and we've done some research on electricity and then you think of all.
Where we have propane in California, where the market is in California, maybe.
Maybe it goes valley, a little bit piece of the Big City.
Okay.
It's just nothing else that tend to be played propane and we're letting him. The many years to come or short and mid term that we can even think about it.
Placing propane so it's corrupt need.
Thanks, Mike Good momentum in California, I think we are considering that I looked at it.
Thank you much.
Much like Canada or think of B C or go back there are very strong as always trying to promote stocks are quicker to change them in their energy consumption, which is a good thing, but we have our Nash I were 5% of all the nurturing. The reason that 5% is alive and solid because there's nothing else that can go there.
Let me give you the emerging unique.
So we're going to feel.
Feel from our survey.
We just did three months two months ago or strategic plan and all the.
The surveys that we are their research and the industry research, we feel that it's sustainable solve it.
[noise].
They are not having any natural gas opportunities is probably good for us.
Okay. Thanks for that Luke and then maybe for best just to go back to the discussion around all costs coming down as you right size the business to the current environment.
But on the flip side. It looks like you know finance lease payments are up quite a bit year over year I'm sure. Some of that is just.
Related to the acquisitions, but maybe you could just provide a quick update on.
Where are your run rate finance lease payments are today, and where you expect them to be into 2021.
Found night.
So from are you talking about okay. So there is one where from a capex perspective on maintenance Capex would be lower from the U.S. perspective, where we thought 10 million around me vehicle and what we have done is where leasing vehicles as opposed to buying so that's roughly 50.
The 20 million.
From a lease perspective.
Right are you, referring to I guess I'm Barack Lisa.
Yeah, Yeah exactly I'm just looking at you know your distributable cash flow reconciliation, so just trying to get it.
Senses to what what the run rate finance lease payment number looks like next year as well as Jeff If you have the maintenance capital as well okay. So yeah. So expect roughly 20 million annually for that and then from a maintenance Capex perspective, you know through 2020 at 45 to 50 million.
Okay great.
And then maybe just last one for me just to clean up the full year guidance here for 2020.
It looks like your.
Assuming five year average weather for Q4, but.
I mean winters here at west, but it doesn't.
Luckily gets arrived out east yet just.
Various if it doesn't come through.
Through December either what the sensitivity could be on your your full year EBITDA number just from warmer weather out east.
Yeah, well look I will go to look up some numbers for you yes.
I wonder if they yeah, yeah, I mean, I think at this point I mean, we do factor as we said a a warmer than the first.
Five year average winter. It is you know us we're talking about the guidance is from you know why we have a lower end of the range you know maybe looking at it one way of.
Thinking about it is if it is warmer five to 10 million.
Right.
Okay, that's great I'll leave it there.
[noise], which will bring us to a dozen away some of that.
Not all places like that one is that one of the sensitivity that would move you from the midpoint. So we'll still be in that guy.
Okay perfect. Thanks, Thanks Beth.
Thank you.
I show next question comes from the line of Allied let's call it.
Sure All alliance. Please go ahead.
Good morning.
Okay.
Oh, sorry, if there's some background noise a couple of questions. So my.
My eyes are focused on 2021, and I want to step back a bit to Q1 20, U.S. propane, we saw very warm quarter.
Well, if we normalize.
With my focus on 2021 and without you explicitly given guidance.
Would you say the impact of the warm weather would maybe 30 million on your EBITDA or 35 or 40.
And the reason quite frankly, it's I'm looking at the step up for a normalized winter plus.
The contribution from the tuck in so you can give me one piece of the puzzle that might help [laughter], yeah I think.
The best way to think about the warm weather in Q1 is on a net basis. The 20, there were a lot of fraud cost efficiency and cost initiatives and you have reduced volume cost associated with that was that 20 million is a is a reasonable leverage yeah yeah.
Mm Hmm, Okay I appreciate that.
Next question and Luke if you touched upon this and I'm happy you did.
I'm going to focus on cost, but I'm going to focus on the cost side than the chemicals Division I know you've moved sodium chlorate out of a SaaS.
You and is there anything on the cost side, where you can permanently take cost down as you look forward to.
You know the business getting into a more normalized cycle and then you know looking at their decisions.
Yeah, there was a.
Of course, let some chemicals and what you're kinda Johnson the submission.
To the submission. This is your variable costs are.
You can follow along and easier when that's fixed lab can make hold as much but we do a we just did the reduction of I'm, giving you a chance to people over a.
Well I think its 63 years of age.
To take early retirement, and if I'm not mistaken brokers looking at number I think when you part people have accepted that so wherever it cost reduction.
Those people 25, we.
We do have some cost reduction we're looking at the NERC over 2021 and due to.
The next to a one to 2 million. So there is something there.
No that's easy to us because your fixed line you know the plants are very modern and or equipment is running the production not so much people.
So then as easy for jobs, but there is a.
And then there is a reduction in cost of is chandni, an overhead of the chemical business for next year.
Okay I appreciate that color and then one last question for me where I'm.
I'm Gonna say six weeks into what Q4.
I'm kind of interested how residential propane volumes. If you can comment on it are trending in the U.S. and I guess I'm looking at an impact of about a normal winter or a colder winter according to the N. away.
And and also people staying at home.
Yep. So the residential is doing well and they're doing you were not were 80, 590% residential the west. So we see the same volume and if I mean, probably when you look at Tenda worth 25% residential 75% industrial commercial.
So we get affected by coal, but more on the commercial industrial business in Canada.
No.
Typically none of this thing.
And our business and kinda, though by the way to your point is residential is up.
But never enough to cover all the commercial industrial slowed down the.
Seeds from coal business, but with our cost reduction you're thinking this year, how we the.
We start with the weather being warm.
The previous a question on the Noughties USA and you start with the Cove in commercial industrial.
Some hail.
We felt acquisition in quarter, four coming but nothing major and it's only a quarter.
We ended up with being in the middle of our guidance. That's to me is the court's from marketable and it shows the sustainability the solidity of our business even in tough times chemicals are a bit more affected of course.
Cobot because energy much sportswear.
Good well. Thank you very much for that color I'll stop at this point and I agree you quite resilient business.
Got it thank you.
Thank you.
I sure next question comes from the line of.
Joel Jackson from BMO capital markets. Please go ahead.
Hi, good morning.
Right.
I know what to be early for 2021, but I was hoping you could maybe help us understand some of the leaders 2021 bridge. So obviously I'm gonna have three down from a macro you're going to have.
<unk> increased earnings and U.S. propane.
Good day today, So you will see kit Kat.
This year, you're going to have more tuck in M&A.
M&A in U.S. cooking, you expect natural drive some earnings.
I guess it will be some off that you won't have the benefit but can you give a kind of a order.
Order of magnitude, where do you see some takes hold your M&A.
Okay and your model, what 2021 could look like from a different bucket.
Yeah, There's a couple of things first somebody mentioned earlier the warm weather last year, we expect normal wear.
We will when might you consider the colder than normal.
So that would be a plus the tuck in acquisition, we don't think.
To go even though we have the rolled up and we're going to do some in 2021, we don't include.
What we haven't bought in 2020 in the 2021 port that what we will include them were weeks away from finishing to forecast what we bought this year and you know what does that mean for the full year.
Great and next year.
So you have those two.
This year's acquisition of M&A, you have the whether those are the big ER.
Accrual.
The improvement that we will have from the state and not much.
Really no decline because of the cold.
<unk> residential.
[noise] or whatever what in your model you were planning you know for EBITDA growth some new touching 21, even on nothing but here are some guidance I'm talking about just what you see in sort of what your priorities for next year [laughter] per tucking yeah.
Yeah, Yeah, I think I mean, yes, we.
Brad talk Tom on the last call.
The Brookfield investment.
The view is that we would be accelerating M&A activity. So from a base tuck in acquisition perspective mean argues would we be looking at something around 250 million.
As always question.
I think as a joke is lower when.
When we bought this year what does that means on EBITDA next year, no, but no. It's no. It's it's rapidly spoke it well. Okay. You want to know are forecast to make spoke were like two weeks away from completing the Q4 I don't know fight because youre well aware.
We bought this year than they were planning to do.
Well Randall it and we have to model, what we think you're going to do next year, so back to saying you're playing out a quarter billion of acquisitions. So we out there you can do whatever guidance won but we have to figure out what EBITDA will actually be next year based on your tuck in plan.
That's what I'm trying to get it exactly look out.
Certain which is sort of what your some of your you're talking a quarter billion of acquisitions.
Okay. So thank you all so that the two pieces then yeah I mean looking at accelerated acquisition you know 250 million is it reasonable thought.
To use for that and then stick around the acquisitions that we've closed to date.
This year and that impacting next year think about that in the range of 25 million.
That's helpful. Yes, I do other question I had was on through the end of September Canadian propane volumes were down about 320000 to 23 million liters. It was.
A lot of wholesale.
Oh 200 million it was EUR $50 million or if you know how do you look at 21, how that comes back I know I think three quarters by what you know how much a wholesale would you expect to come back in 21 would you expect oilfield slightly up or flat. Some other little puts and takes in motor fuels and commercially how how are you able to different.
They are being bucket going back and 21.
HM.
So you know there has been a slow down in industrial and commercial and think about always hard to good volume and.
The.
Come back and buy in BC market, and that's really down so to predict.
All the.
We're all industries in general are going to come back in 2021 and when after a vaccine. This so hard to do so what we usually putting our heads together for the next few weeks is.
We always give a guidance we really.
Strongly believe doesn't it's hard to predict more today than a few years I.
Mentioned, they continue with us well I would just sort of mention you know at a high level and it's going to be linked to when a lot of the COVID-19 restriction that you want to think about it from a category perspective for motor fuel.
Bill I think you know until travel return to normal I think you're still going to have some depressed volume on that meet our assumption would be we'd start seeing in certain of these categories improvement starting in Q1, but probably not until the back half of next year real improvement.
Do you want a commercial perspective, I mean really until you have the restricted capacity being lifted they'll still be headwinds in the commercial area and then wholesale the best way to think about that is it it'll follow the overall economic activity now oil and gas is a bit of a a different animal and we would.
I'm, sorry that I'm not recovering at the same pace as all of the other category, but the U.S. oil and gas is probably coming back stronger defining it. If we gave you are two cents and all of you on the call are probably very quick to do economy analysis of the world.
I think I think when it comes back to the two we have a vaccine maybe.
You're 2021 is more back to.
95 to 90 95 for some normal I think you'll see.
Not forecast not because we don't know enough, but you'll see chemicals coming back or easier with coming back kinda no no sorcerer and some commercial than.
Auto industry.
But we haven't propane kind of though I think though there will be a boost when it comes back there'll be a push and it'll be a helping us tremendously, but hard to forecast that to probably won't go there I'm a full 2021 forecast.
That's helpful. If I had any feedback I would say when you give 2000.
Thank you.
You should give it really including what you think will be for your accelerated M&A and then you can maybe bucket off and say here's our guidance 21. This includes acts of the incremental EBITDA Mac position because that's what investors are modeling right with acquisitions. So may want to consider getting a two tiered level of guidance next.
During.
Including what we're going to abide during the year 2021, while you're up where your placeholders and you.
You have a plan to you got cut off your assumptions right.
And we'll take that consideration thank.
Thank you.
And if we do we'll be cleared up there haven't been bucket.
Yes, but this is what we have shown in what we have been.
No to be a whole of everybody on the call at the end of who've been extremely open transparent than we give you the right.
The good news about the RV no pullback.
No things are unfolding.
Thank.
Yep.
[noise]. Thank you.
I show our last question comes from the line of David Newman from dish out and Mr. Newman and sorry, okay.
[laughter] a quick follow up the kind of completes the puzzle on your 21 forecast you know summary D. You generally take a time.
And that kinda are really a focus on initiatives in and one one we haven't talked about it in a while is your sensor program and my superior and you know what you're able to get done this year in Canada, and I think it plans to the U.S. for 2021, and how meaningful that that could actually be to EBITDA in terms of efficiencies and locking in.
You know I stick in answer to your customers.
Yeah. So it's a good question and I can assure you, though our project and working as we speak all the time. So we went from you know 80% of operating cost to the [noise].
50, 657% overall and there's room there to go lower.
There's initiative on project that we're testing now with the digital dispatcher and.
And would it kind of thing in one particular area as we see a simplification over forecasts.
Whether the customer base.
[noise].
Sensors, we have installed the digital approach.
Once we had the test proven good we'll apply the cross kinda doing that across the west.
So those program a big lift stuff that's been done up to now I believe there's I never forecast for the strategic plan, there's a percentage.
To increase every year of efficiency, yes, we will continue to do.
Probably not the <unk> none of the big are they going to 57, but can 57 become 56 of the pipe is the core absolutely.
And Mike and where they stand and in Canada overall in terms of the.
The implementation and my understanding is you were.
Jordan eat you hadn't even started it yet in the U.S., so what sort of status.
Well then Kevin dog.
The big event lifting is done and we're applying that to own this space.
And then when you look at other projects that we didnt.
Handle two years about or even 18 months ago.
How do we.
Get to a better return so that the logistic of sending the trucks and.
Filling the tank and more spending but also oh full moon, they have big our work to maximize the region you know whether it's.
Truck.
There was another level of opportunity there and what we're developing is doesn't exist in our industry. So we're testing that then and then area as soon as we have the proof of concept that will start executing and then we'll be in a better position and six nine months to sell conducts word so large and then.
The 22.
We'll reduce our opex accordingly, and just to answer more specifically from a sensor perspective in Canada from a volume perspective, we would be at a stage now where roughly 70% of the volumes in Canada are now covered under.
<unk>, yeah sensors and B.U.S., we have been very quickly achieving putting the sensors into we're actually at 40% to 50% in the U.S. the volume down as well.
Okay.
What do you think you never mental delta could be getting that up to 100% in terms of your life.
You're talking about going down to you know 54 or 55% on opex. So either in your business cases, what is what sort of EBITDA contribution might that mean, the delta on the Delta.
So let me answer for that you never get to.
The person you're some of the same car that will take him know volume to install this system. Okay.
There were some very small visit ventral you don't do that.
Now every new installed we have an integrated already all the new install we had it on because we do is go from.
No there was an extra cost much for us to do.
Then to your point, what does every point of Opex reduction kind of the U.S. citizen daughters, which we haven't where and there are 2021, you know that the proof of the model. We're talking about will be more 2022 23 24.
Yes.
I know I know if we can do that are involved in a one point what does the word.
You might have to get back to you know yes.
Well get back to you on that.
But and then more importantly to beyond just the cost savings I mean once you got these sensors on there I mean, who walked down the customers do not.
Before it becomes a competitive moped.
Yeah, you reduce your attrition a lot.
And to have a customer.
That is like I went to supply because of the connection to digital the information they have on their falls under billing that we can control and spend properly, it's calling give you bring so much.
Lou to those customer or those national accounts is the same we're saving them a ton of money. They don't need people to kind of hang some volume isn't always the building you for the well in the U.S. It's all digital life, we saving those big National account tons of people and.
Residential to say.
So you're ending up with having so much to do that.
Customer that going into where else unless you're just.
Treat their price so larger they've started to say what the eggs going on which we don't do.
So you're adding a lot of blue and becomes a very solid customer for a long long time.
Axle.
Thank you very much yep. Thank you.
Thank you Becker.
That concludes our Q and a session at this time I'd like to turn the call back over to Mr., Luca <unk>, President and CEO for closing remarks.
Okay. Thanks.
Thank you everyone and.
For your question.
So when I look forward to speaking with you all done in the fourth quarter exciting tying them. So.
Some timing automotive M&A and drove the.
We need to execute on our growth strategy of course for acquisition. We know we can significantly improve the operation where that finish there is always a great opportunities.
So far the July.
Of course, no no doubt there stuff years that we have to adjust costs, which were just plenty of it. We then they continue to look at that some of your question today, we're referring to that challenging times no doubt we're still quite.
Feel quite good.
Either.
With everything that's going on.
We feel quite good and everything thats been done for employees on our service the customer we do a test in service to all our employees and customers and the quality of efficiency is improving and I'm like that so could you have suffered from.
I learned for you.
So.
For all of you, it's hard to predict what's going on to what degree and we'll help you and the next quarter with our guidance for 2021.
Oh, that's a wish you all the best of luck. Thank you for participating.
[noise].
Well thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].