Q4 2020 Superior Plus Corp Earnings Call
[music].
Good day, ladies and gentlemen, and thank you for standing by welcome to the superior plus 2024th quarter and full year results conference call. At this time all participants are in a listen.
Only moat.
The speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone keypad.
At this time I would like to turn the conference over to your host Mr. Rob Doran Sir.
Please begin.
Thank you.
Everyone and welcome to.
This conference call and webcast to review, our 2020 annual and fourth quarter results. Our speakers on the call today are Luke days, right on President and CEO and Beth Summers executive VP and CFO, Darren Hribar Senior VP and Chief legal Counsel is also joining today's call.
Call.
This webcast and we encourage listeners to follow along with the supporting presentation, which is also available on our website for this morning's call Luc in basketball begin with their prepared remarks, and then we will open up the call for questions.
I turn the call to Luc I'd like to remind you that some of the comments made today maybe.
As being weird looking in nature and are based on superior current expectations estimates judgments projections and risks.
So on the information provided refers to non-GAAP measures.
Please refer to superior annual MD&A posted on SEDAR and superior website yesterday for.
Maybe for detail on forward looking information and non-GAAP measures.
I would encourage listeners to review the MD&A as it includes more details on financial aid to reach 2020, and the fourth quarter as we won't be going over each financial metric on today's call. This will allow us to move more quickly into the question.
Great answer period, I'll now turn the call over to moving.
Well, thank you Rob and good morning, everyone. Thanks for joining the call. We hope everyone is staying safe and healthy.
I'd like first to take a moment to thank our employees for their exceptional there I've heard this price here working index yield delivering fuel to our customer.
Working on their chemical plants, and those working remotely supporting our operation.
We have performed well even in the face of tremendous adversity and I appreciate your hard work and dedication.
Our modified business practice continue with their health and safety of our employees our customers local communities and their first.
Okay.
As our propane distribution and specialty chemicals businesses were considered essential and critical service.
In infrastructure and all of the province territory in state in which we operate in the U S, Canada and Chile.
I've continued to service our customers that have been classified as essential.
Very well.
We announced the sale of a specialty chemical business to Bury chilled yesterday, which represented the final stage to where it turns it transitioned to a pure play energy distribution company <unk>.
<unk> price of silver and 25 million represents a multiple of eight time on specialty chemicals for 'twenty.
On the pre <unk> 16, EBITDA was 91 million per vehicle business. This year.
So with the structure of the deal and the purchase price adjustment mechanics them Superior also continued to potentially benefit in the Chlor alkali market recovers also the flow rate.
Over the next three years.
Yeah.
The proceeds from the sales specialty chemical will improve our financial flexibility and allow us to accelerate our growth through acquisition strategy.
We have demonstrated many times that we can execute on the acquisition and integrate the newly acquired businesses and tour.
Our operating platform quickly, enabling us to.
Extracting cost savings and synergies.
Following the success of our 2020 acquisition with over $285 million in acquisition, we anticipate more than doubling the U S. Propane EBITDA over the next five years through acquisition.
<unk> organic growth and cost saving initiative.
Actually when we think of five years in my mind it won't come faster.
More recently in the fourth quarter, we completed two retail propane acquisition one in the south there in California, one in North Carolina, we have already made three more.
Position, including two in Canada, and 2020, we completed five retail propane.
Distribution acquisition for a total consideration of $296 7 million.
The investment from Brookfield on July provide the capital for us to reduce our debt and quickly reinvest in propane.
Acquisition.
We continue to see a larger number of acquisition opportunities ranging in size than the eastern U S. And then California, we have improved the business. We have acquired of at least 25% using a superior way operating plus farm and implementing our monitoring procurements.
Chairman sales and marketing initiative, including our industry, leading digital service offering.
<unk> is one of the leading North America retail propane acquirer, and we're earning a reputation as the buyer of choice for many prospect sellers in this industry.
Turning to operations.
Operational and financial result, overall I'm pleased that our fourth quarter and full year result, we achieved the midpoint of our 2020 adjusted EBITDA guidance. Despite challenge of the COVID-19 significantly warmer weather in the first quarter reduced drilling activity in North America and modestly.
On a warmer weather in the fourth quarter.
The fourth quarter adjusted EBITDA of $169 8 million was 4% lower than the prior year quarter, primarily due to the decrease in EBITDA from operation. The full year 2020, adjusted EBITDA of $495 9 million, which was 6% lower than 'twenty 'twenty.
<unk>.
Primarily due to the day in 2020, primarily due to the decrease in EBITDA from operation.
Fourth quarter EBITDA from operation was $171 7 million or $16 1 million decrease over the prior year quarter, primarily due to lower results from our specialty chemical and Canadian.
Crane, partially upset by a result on a U S propane business.
The full year 2020, EBITDA operation was $518 4 million.
A 43 million a decrease from the prior year due to impact of COVID-19, and their business, partially offset by incremental.
Contribution from acquisitions in the U S per paint business.
We expect the public health measures in place to reduce the spread of Covid to have an impact on their business in 'twenty and 'twenty one until the vaccine is widely distribute and you asked them in Canada.
Due to these measure or commercial customer operating.
And very much lower capacity and.
<unk> operating rate and.
And we have taken action to right size, our business for the lower expected sales volume.
First nine months of the year.
However, well positioned to service our customer want demand recover.
We will emerge from depend.
Are you going to take as much stronger with a better customer share company and organization poised for significant growth and increase shareholder value.
The sale of specialty chemicals business is expected to provide more liquidity for us the accelerated our strategy of growth through accretive acquisition parameters.
Do are probably in the U S propane markets.
We are optimistic the economy recover will take place when we figure and their forecast in Canada late 'twenty, 'twenty, one and probably back to normal in commercial industrial in 2022.
But in the U S business.
<unk>.
They immediately because we're more retail consumer oriented in the state when its Canada as you know on mix as big in the industrial and commercial as well as retail. However, we have a resilient business and we expect to generate strong free cash flow even in this challenging environment.
And now I'll turn the call over.
Over to Beth to discuss the financial result of our 'twenty 'twenty, one and 2021 guidance.
Net up to you.
Good morning, everyone.
The annual highlights for the fourth quarter and full year 2020.
Fourth quarter, adjusted EBITDA was $169 8 million, which was six.
Lower than the prior year quarter, primarily due to a decrease in EBITDA from operation, partially offset by a decrease in corporate costs and a realized gain on foreign currency hedging contract compared to a loss in the prior year quarter.
The full year 2020 adjusted EBITDA.
$495 nine.
Now, which was $28 6 million lower than 2019. This is primarily due to a decrease in EBITDA from operation, partially offset by a decrease in corporate costs and realized losses on foreign currency hedging contract.
Alright.
Yeah.
On the cost per share.
With 71 per share.
Compared to the prior year quarter due to lower adjusted EBITDA.
Higher weighted average share.
Partially offset by lower interest expense and cash taxes.
Weighted average shares outstanding increased due to the treatment on the preferred shares on it.
Now on converted basis and the impact of additional shares issued under the drip in early 2020.
Interest expense decreased due to the lower average debt levels and lower interest rates on variable rate debt.
Aoc asked before transaction and other costs per share for 2020 with $2 in <unk>.
<unk> per share 28 cents lower than the prior year due to a decrease in adjusted EBITDA and an increase in weighted average share that Daniel this is partially offset by a decrease in interest expense and cash taxes.
From a debt leverage perspective total debt to adjusted EBITDA as of December 31.
<unk> 2020 with three five times.
Which was at the higher end of the range of three times to three five times, which we provided as guidance and 0.2 times lower than the leverage out of that December 31 2019.
Turning now to the individual business results.
U S propane distribution EBITDA from operations for the fourth quarter with $8 4 million, an increase of $2 2 million compared to the prior year quarter. This was primarily due to higher sales volumes related to acquisition and higher average unit margin partially offset.
By higher operating costs related to the acquisition.
Sales volumes increased 25 million meters, primarily due to incremental commercial and residential volume from acquisitions completed in 2020.
Partially offset by lower commercial distillate volume.
Average unit margins were 41.2 cents.
That leader compared to 47 cents per liter in the prior year quarter, primarily due to customer mix, partially offset by the impact of the stronger Canadian dollar on U S denominated gross profit.
Operating costs were higher due to the impact from tuck in acquisitions, partially offset by the execution.
Fusion of cost saving initiatives and realized synergies from NGL and other acquisition.
The U S propane EBITDA from operations in 2020.
With $206 9 million modestly lower than.
Modestly lower than 2019, primarily due.
To lower sales volume in the first quarter related to significantly warmer weather.
Partially offset by the incremental contributions from acquisitions completed in 2020 in 2019 and realize synergies related to the NGL acquisition and other acquisitions.
U S propane EBITDA from operations.
In 2021 is anticipated to be higher than 2020, primarily due to the incremental contribution from acquisitions completed in 2020 increased sales volumes related to the expectation that weather will be consistent with the five year average cash.
Saving initiatives and realized synergies from acquisition.
<unk> completed in the past 24 months.
Average weather in areas, where we operate as measured by degree days is anticipated to be consistent with the five year average.
Canadian propane distribution EBITDA from operations for the fourth quarter was $65 6 million.
A $10 million decrease.
Primarily due to lower gross profit, partially offset by lower operating costs.
Gross profit decreased compared to the prior year quarter, primarily due to lower sales volume related to reduced drilling activity in western Canada. The impact of COVID-19 on commercial and industrial customers and more.
Partially offset by higher reseller volume on.
Operating costs were lower primarily due to a decrease in volume related expenses.
Benefits from the few subsidiary.
The wage subsidy program and cost savings initiatives.
Canadian propane.
2020, EBITDA from operation was 195 million $5 8 million lower than 2019, primarily due to a decrease in gross profit. This was partially offset by a decrease in operating costs.
Gross profit decreased primarily due to the drilling of reduced drilling activity in western.
And the impact of COVID-19.
Operating costs were lower primarily due to a decrease in volume related expenses the benefits of the fuse program and cost saving initiatives.
Canadian propane distribution EBITDA from operations for 2021 is an.
Stern campaign, it to be lower than 2020.
The impact of his shoes program.
Benefit in 2021 is expected to be significantly lower wholesale propane market fundamentals are also expected to be weaker and the impact of COVID-19 is expected to negatively impact commercially.
This industrial sales volume and commercial sales volumes in Western Canada are expected to be lower partially offset.
By lower volume related costs and cost savings initiatives.
Average weather in Canada as measured by degree days is anticipated to be consistent with the five year average.
So now to specialty chemicals.
<unk> from operations for the fourth quarter was $25 7 million.
And $8 3 million decrease compared to the prior year quarter, primarily due to lower gross profit, partially offset by lower operating costs.
Specialty chemicals 2020.
Trade up from operation was $116 5 million, which was $35 4 million lower than 2020, primarily due to decreased gross profit related to the impact of COVID-19 customer curtailments and reduced drilling activity, partially offset by a decrease in operating costs.
Lastly, the corporate results and the adjusted EBITDA and leverage guidance.
Corporate costs in the fourth quarter were $1 7 million lower than the prior year quarter. This was primarily due to a decrease in L tip expense related to the share price performance.
Interest expense was $24 4 million, a decrease of $1 3 million compared to the prior year quarter due to the lower average debt lower variable interest rates and the impact of the stronger Canadian dollar on U S denominated interest.
Debt was lower primarily due to the impact of the proceeds.
Proceeds from the Brookfield preferred share investment.
And the impact of the stronger Canadian dollar on U S. Denominated debt. This was partially offset by acquisitions completed in the third and fourth quarter.
In the fourth quarter Superior had cash income tax expenses of <unk> 1 million.
A decrease of $5 9 million compared to the prior year quarter due to lower provincial taxes and beat taxes in 2020.
We are introducing our 'twenty 'twenty, one adjusted EBITDA guidance range of 370 million to $410 million, which implies a mid.
Midpoint of $390 million.
Based on the midpoint of our 2021 guidance. This represents a three per cent increase compared to the 'twenty 'twenty full year pro forma results adjusted for the specialty chemicals EBITDA.
When also adjusted for the fuse benefit.
This represents an approximate 10 year increase year over year.
The increase was primarily due to higher expected EBITDA from operation, partially offset by higher corporate costs.
EBITDA from operations in 2021 is expected to be higher primarily due to an increase in U S propane.
Paint EBITDA, partially offset by a decrease in Canadian propane EBITDA.
The low end of the range accounts for warmer than normal weather reduced economic activity in western Canada and delays in the economic recovery.
High end of the range accounts for colder than normal weather.
Stronger whole wholesale propane market fundamentals and increased drilling activity in western Canada with that I'll turn the call over to Q&A.
Yeah.
Ladies and gentlemen.
A question my comment at this time. Please press Star then one on your telephone cheaper.
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Our first question on the comment comes from the line on David.
From day shorten your line is open.
Good morning folks congratulations on itself.
David.
Just on just on the sale what do you is or what do you like why now what do you see in the pipeline. We know there's a big player out there suffering so any comment.
Just on any comment on on the I guess near term pipeline and also what might be your targeted spend for M&A in 2021.
Good question.
So you know trophy deals can be.
But no doubt.
We do have a pipeline that we've ever seen since we started looking at chemical sales in <unk>.
<unk> growth.
We absolutely are excited about this for a couple of reason the chemical sale and we heard that some people thought maybe not that.
Full price, but two things come to play we're going to have some upside when they can make hold returns over the next two years after they on that so nothing quarter. One this year.
And note 29 'twenty 'twenty.
And then when you look on the pipeline in this day, it's really robust.
Theres some.
Midsize enterprise cause some small one.
No we don't comment on there.
We're forecasting any acquisition, but we will make something of course.
Hard to predict the numbers on the sorry, we don't we don't think of the big one unless they happen. So it's not something that we when we say well Corp.
Right.
Over the next five years.
Good growth in two acquisition, we don't take and conservation we could do one of the big one because we never know all that kind of unfold.
So no doubt if you take the money from the proceeds and pay down debt.
On the liquid to acquire.
And then you're on Baidu as a company the sooner the better than.
And many of them for sales more than ever.
You have a better return than if you sold typical for more money on three years.
So it's.
Fotis its time and energy up every one to be the best in this industry.
Which I think on the accretion point of view, we have a big edge.
I am tons, Vince deal were looking up now will improve or at least one five per cent.
We buy them, so you'll end up paying.
Paying for bigger midsize enterprise, you're gonna have mine and they'll end up at seven after we put our cash.
Superior way.
I was on marketing pricing approach and our efficiency approach.
Yes.
Why or why now.
Pipeline is big because we know when we buy them, we're going to improve the bottom line a lot 25%.
And then we are in dollar per play, which I think the market.
Mr kind of do U S. We've heard the.
Or so years.
A ton of investor interested in their game, but didn't like the idea of two legs that are not net.
Seeing much in common.
So it was never a best ideal time in the world, but we are getting good value, we're getting some potential good upside as the.
It comes back on the.
Market.
And 'twenty 'twenty.
<unk> 'twenty 'twenty, one and 'twenty 'twenty two so we will be participating in some upside we hope.
You can never predict how much and when but it's looking good and we thought for the best of our shareholder.
This is all we're going to get to be a very different company.
If you look three years from belt, Okay, and yeah, no no doubt like I like the.
Outside because the chemicals are going to take a little while to recover did did brookfield or M. M. B out of Germany weigh in at all I'm sure you won't be able to answer that all.
After that but you know obviously, you know clean ratable cash cash flow generators.
<unk>, a pure play and very attractive to potential strategic or other financial buyers I mean.
Any just any broad comments, there look on that side.
Yes.
Play at all the German company into making this happen day.
Don't say.
We chat with them.
Later, I got a call from their C. U E P M and they got about I guess, a month on a half ago and it did confirm that they were going to get over 10% at that time, all day could say and we didn't have any discussions. Since then was where we have a big enterprise 14 billion Euro.
And were sold some division me as a new CEO for two years. He was explaining and now we're looking at a couple of business that we think are really sharp and they know what they're doing and they're the best model in an industry.
Wanted to take a position in a few of those company and we selected superior is a great.
<unk> opportunity and it's the first one that they invest in.
So are we.
We understand that.
We'll.
Take a position I think it's now 12 on a half on more.
We have no idea what their intent is accept didn't show any intent to go on.
On.
Our old an offer for the enterprise, we heard nothing of that sort, yeah, and Brookfield on a bit more influence because we have a board member that's with Brookfield or they're absolutely you'd like to play it was totally pro for it he likes the growth in the U S. So there were as a board member was really.
Make on behind the management to do this and he was he understood the value that's what he does for a living and he said it makes sense.
It creates more value faster with the energy growth okay.
Okay Perfect and then just have a couple of little housekeeping ones, if I don't even on me.
On a squeeze them in no just.
Corporate costs for this year I think.
So there might.
But higher in 'twenty and 'twenty one.
And then the second question is just on Texas and the winter storms all of that how it might have impact on logistics volumes and actually differentials between Conway and Edmonton.
A couple of question Darryl I'll pass it to Beth.
Sure so from a corporate cost perspective.
Active I mean, I think the best way to think about them for 2021 is being in a range of day.
<unk> $22 million to $27 million or the range of $25 million is maybe a good way to think about it just sort of rounded out there David Katz.
A little bit higher I guess is the question.
Yes.
Might be low fundamentally it would be linked back.
Price expectations from.
Net perspective.
So have we.
Subsidy being reflected in the numbers right.
Right.
So just just those couple of items I would point to though is that the most obvious one.
There's other smaller item is everybody to be aware of the insurance market is a little bit more expensive than other items like that as well but took on.
Got it.
On the on the Texas weather and all that stuff going on in any differential improvement and things like that.
I think the volumes arent sure so just to.
I mean, what we are seeing in the market is that the.
The differentials are not as robust they're weaker we did expect that I'm coming in to the first quarter from what we saw in 2019 and 2020, where they were quite robust.
What we're seeing now there's still healthy.
Inventory levels of propane in particular in Canada, but also there's still inventory in the U S. Even in light of the.
Colder weather and from a production perspective, just to put it in or are there still a fair bit of protein production.
You know on a year over year basis, the production levels are.
Virtually the same in about 20% higher than you would've seen in 2018 or two years ago. So there is a fair bit of production in propane now on the exports are higher which overall is with the cold weather driving the pricing higher.
However, with all of this has to be said, it's impacting pricing, but from an overall differential perspective, it isn't widening our view of opportunities from a differential perspective.
Excellent.
Sure.
Weather in the Midwest So.
We always do forecast with normal.
But there certainly are improved.
Improvement.
Right now because this particular weather Midwest is coming east.
That's gonna be looking good for us.
Generally speaking for the quarter, one because whether it was.
February and March I think we'll have good months and you've got easy comps in <unk>.
And I, certainly am glad I'm working from home.
[laughter]. Thank you very much have a great day. Thank.
Thank you.
Thank you. Our next question or comment comes from the line of Jacob bout from CIBC. Your line is open.
Good morning.
Okay.
Can you comment on the.
Leverage levels that youre comfortable with now.
Now that you're a pure play energy distribution company and it does it does not.
That achieved.
Yeah from our perspective, our targets remain the same.
We're targeting to be between three and three and a half time.
Well, we're on executing on acquisition I mean of course, if we have a larger acquisition.
As we've communicated previously we were potentially comfortable to go a little bit over the three and a half time, but then have a line of sight to come down through delivered synergies back down within a 24 month period into that range.
That hasnt changed.
And then when you're looking at.
The U S tuck in market.
Uh huh.
Covid changed out or are they more or less expensive and maybe just remind us again how.
Or we should be looking at it from a multiple perspective pre post synergy.
Yeah. So let's go with the mid size, that's not go with the big one for the moment.
So there's something real into bigger there isn't so in the mid size.
It's a bit of an opportunity we have to be careful about the multiple.
You pay anytime that half to even.
Nine on the midsize enterprise like mid like $25 million to $50 million EBITDA.
Your end up at two time turn after we take 18 months and we don't do it on them on tour tree No Big Bang here and there are execution and their superior way platform in all day.
And piece of the opportunity it brings us to becoming six on a half on nine becoming seven.
So there's no doubt that debt.
Good movie, there's a ton of them and on Covid, what's helping a bit and that wont showing them hooked to poll.
Many of them that we're.
Different now have a percentage of their business that is commercial.
So that has certainly been affected by the toll and then North America propane of about 15% less volume on the commercial industrial side. So.
So if we're looking at acquisition nine time.
And right now there.
We're looking at probably equal or.
On the retail consumer.
Do better if they have plenty of pound cylinder, but those are the two big players. So we're not looking at that.
And then you have the opportunity with those multiples by 'twenty to 'twenty, two for them and for us on kind of.
The commercial and industrial comes back those business went out of a 15 per suddenly.
Commercial and industrial and you know Internet, though that that's why I think our job this year that didn't extraordinaire, where 75 per cent commercial industrial in 25, 30%, let's say.
Eventually, 70% all others.
When those.
S business.
As affected last because there are.
90 plus percent residential.
So there's good opportunity good opportunity to buy because their EBITDA are affected somewhat because of the commercial and.
And how long it was taking too when I was on the synergies.
We usually do with them two summers depending of size on gel. It was two summer so we don't touch the winter.
And then we get going into the summer to install more of a sensor to organizer assist them and then if we're not finished by October we stopped and then we wait for the following year.
It takes.
Summers for larger one small one we could do it in one summer.
Okay, and just just to circle back. So so COVID-19 really has has really had no impact on.
What you are paying for these tuck ins.
No I'm afraid to say well.
I, just say multiple but they probably.
Two is to do more EBITDA when the full COVID-19 disappears.
I.
I will leave it there thank you very much.
Thank you Jacob.
Right.
Thank you. Our next question or comment comes from the line of Ben Samsung from Scotiabank. Your line is open.
Hi.
This is yet from Scotiabank. Thanks for taking my question and congrats on Hello.
Yep.
Hi, Yes. This is <unk> on for Ben Thanks for taking my question and congrats on that.
I just wanted to get a little bit more granular on on the M&A opportunities in the pipeline, you're seeing to the extent that you're able to share it.
I'm just trying to understand that.
That opportunity set.
Isn't that pipeline is there may be more of a strategy to target larger I know on the past you've said you've been agnostic based on the best opportunity available, but with the balance sheet power. You have is there maybe a desire to go for something larger or are you still going to continue to focus on the smaller space and then just as a small follow up.
Is there maybe any regional focus within the U S didn't have in mind.
Yeah, our original focus for the moment no less than three years as all day use kohl's.
And then all of the West Coast.
<unk> primary, but we could go a bit.
East of California, and we could go of course north.
North of California, those are the two great markets.
So why the.
We can touch on seal and do and we feel comfortable about is doing mid size and small one because they become available and were the primary buyer for many reasons first there was a lot of respect for how we did.
On the deal we did all we deal day employees, we do the health and safety and we have a reputation now after all these years that.
We have an edge on buying.
Most people when we talk with they would drive yourself to us because of our position.
Wait to do things and so we have a bit of a net the large one.
None that we're not considering them as just there's only three mid size, let's say $25 million to $50 million. We're all over that if we can do those.
Small of course, we cannot small one and we pay less of course and <unk>.
We integrate them in a region, where we are already a small one.
One was the large one we just understand them, we know they're where they're at we knew what we could do with their business. If we were the acquirer and it's again at least 25% better but we don't go there because they're not for sale then.
Ed.
There and they've handouts to happen and if it was.
What would happen we would certainly look at it.
But we don't we usually execute everything we promise and we do just like we did.
All these years, so when we think of a big one and we're not in control of that and we don't know when and how we just.
<unk> built a file understand it then we.
On the event is on smaller available we just go for adults.
That's very helpful. Thanks, and congrats again.
Yeah.
Thank you. Our next question or comment comes from the line of Steve Hansen from Raymond James Your line is open.
Hey, Yeah. Good morning, guys again, congrats on the Hill.
Just wanted to dig into the guide a bit luker Beth it sounds like Canada is one of the sources of the drag in the guidance I'm just trying to understand it a bit in the context of <unk>.
There seems colder thus far E&P activity is on the rise along with oil and we should be lapping some of the COVID-19 comps here fairly quickly.
Maybe get a sense for how much of the drag is related to the subsidies going away or trying to maybe better color on that would be great. Thanks.
Yeah, I'll start on that I cannot above the subsidies so no doubt we're on.
You've seen our history, we're not tied to net execute.
Cute on what we promise.
It's been hard for us to forecast 'twenty 'twenty, one in Canada on more than the states.
And we are predicting debt for nine months business as usual no gain commercial industrial no come back we hope we're wrong.
But the way, we see the vaccine and kind of doing that.
We see the.
On the security that govern them and brings them to stay at home, which you should I guess.
We say hey, we don't know so we know it's not the next 3456 months. So why don't we just think of quarter four probably somewhat better and then 2022 works out.
Coming back.
Okay. That's helpful.
I was gonna day in India, I mean, just adding to that.
From a from an overall or a high level the no wage subsidy, but still facing the headwinds associated with COVID-19 for for the portion of the year.
What's your primary driver.
Yeah Okay.
No I appreciate that.
Just a follow up if I may is just look really really wanted to think about the synergy targets a little bit as you really start to focus on the U S acquisition debt.
Is it that gives you so much confidence in your ability to extract synergies.
If youre going to see history, but when you when you look at the when you look at the targets youre discussing or even the one you've decided recently.
Is it just the operational aspect of it all is it the technology that you bring to it can you just give us a bit more specifics around why you're so confident you can get the synergies.
Yeah.
So I call it the three.
Buckets.
So we start.
The industry is not extremely sophisticated and that gives us an advantage. So say how does that silicon all those other industries do the sales and marketing. So we did lock on to spend money.
Still a tour and sales and marketing so we have.
Professional that can go to an industrial customer or commercial customer understand properly how.
They will use energy and we help them more than just saying we are preparing for sales, we're not selling a propane commodity will organize it for you.
I always use the example of a TUSK.
Tuscola.
Correa you have 40 people across Canada looking on all the tanks. They have too many tanks and we have to go every day.
Low time out.
Digital on resolve that we put a bigger thinking one area. We can now go to your place two times, maybe three maximum.
The vs.
And then we can give you by the minute exactly how much you have a propane and everything so you don't need 40 people to account for that and we from a billing from an inflammation.
Hillary we're just bringing a new dimension that Costco will save a lot.
Simplify their work their process.
He gained from their relationships when you're on blue like that to customers you end up.
Thank you.
Cutting the decline you always have customer loss, we've cut that in more than half we lose half the customer everybody in the industry, we put more glued to the different touch point and service.
And we would.
When you have those system in place on their residential there they'll never run out of gas because we know how much propane in each day and they feel they can go to London and spend a month off in the winter and we will take care of their tankers on even up to to think about paint and we will do automatic billing or we'll give.
As them on months, if you wanted on average billing that one big time in the winter.
So those are sales and marketing then we looked at the pricing intelligence.
Who is.
What price can you charge that you don't lose the customer and as always I said that over the years, there's always tweaking of a penny or two and the other adult that glu installs.
You are touring segment.
You keep them, we know if we go over the top on pricing they'll start to think of other supplier. So we kind of oven intelligent centralized pricing system in Canada U S debt studies.
Studies that regularly in every region to know what's the price what's the market towards the competitive landscape.
On the different what can we price to not be hurt on their sales.
So that's another intelligence system, we've put in place operationally speaking, it's big L. I remember starting year, where 80% of operating costs were around 56% operating costs and you know what with the work. We're doing now is to project.
Cape Instead, Digitalized, our bid dispatching will end up I hope.
Investor Day, we could give you some number I think we will end up in the low fifties in the next three years. So you still gained three points on your total business, that's a lot of money.
So once you install that in the state when you have on industry.
And where are the three big <unk> that are not.
Had the chance to develop grow in an organized day.
Don't give cash to shareholder like yield income to us and Canada.
You're just stuck on the box and then you have all the independent that don't have the scale the size for this system technology digitalization professional sales.
<unk> marketing pricing intelligence and have some good regional players don't get me wrong, but as soon as we look at these let's say the top three right now and you apply our methodology and their superior weight to their business I can tell you on one there's 82 until you too many.
And then and then you look at.
Oh, there's margin opportunity you look on the operation Wow, we can save on this and that'd be more efficient.
And then you look at supply.
Isn't sure but are those seven knee or small reach on the old and I'll, let say mid size 25, 50 billion did on ever scale on their storage on their professional team in Calgary and then California.
And you can buy from the big supplier and then an edge there because of your size and then your store properly so when there.
We're big weather happens what happened in the last crisis with the weather was.
Five years ago was just over the top we serviced every customer I remember a big big industrial accounts that was at a.
Sales were the bankers and you said to me look she couldn't service be propane on way up north.
I shut down that frankly trust me like a million a week and you guys could never Miss it because we have the scale, we have the service of the supply and where the pricing to the service of supply and we are intelligent.
Dinner or people positioning now.
Do we buy and then we offer customer you want on one price for the winter coming we're going to make a few penny more and we will fixture price and we hedge it.
First of all that's tough.
So again I could go on and on Forever, So sorry, everyone, because that's our game where.
We're operators.
Diligently Q, that's working and we will keep going its not finish.
I appreciate the color. Thanks.
Thank you. Our next question or comment comes from the line of Nelson <unk> from RBC capital markets. Your line is open.
Thanks, and congratulations on the chemical sale I'm just.
Hey, a.
Quick question on chemicals, you you mentioned that obviously there is some upside.
Do you have a like what's your.
What's your view.
And in terms of our outlook for our chemicals in 'twenty.
'twenty 'twenty, one I know like 2020 was obviously very.
Just this year, but I just want to get.
On a sense of how likely you think it is too.
Get some incremental payments from that price adjustment mechanism going forward.
So I'll, let Bert channel if you wanted to call them tell you how they are going to see the picture on folding.
But.
We think that we all know and we all know on their call.
Basically speaking.
The stomach on this.
This is on the low low end and when it comes back.
Much more amended 10 million more so.
I think history will show and it's.
It's going to come back.
Once our game of the three years only starts off 30 signed a check and send us the money, let's say end of March early April.
And when that starts to look at 36 months, our sense that we will get some.
Upside on that are.
Another extraordinary to their room, but there are positive.
If you look at the history of the last few years, maybe I'll ask Beth to cover that she has had the history in front of her Oh.
Nelson.
That way maybe to think about it is if you look back historically over the last 10 years.
E.
It's roughly a 117.
You're in.
2020, which is lower you're looking at an average of around one <unk>.
Just to give you a sense of historically on the same number as to how the company performs through the cycle.
Okay on that that makes sense.
Average.
So do you think like do you have a sense of how long it would take to kind of get back to the <unk>.
2018, 2019 level I know that.
That was probably more of a peak here in 2018, but does that look like it's on the horizon.
<unk>.
It's under a horizon.
You'll be a better judge on me went on but.
But it is coming it will happen yeah, I think now on to maybe the way I'll try to answer that question. Because all we can really do is look backwards versus trying to and we know what will happen from a cyclical perspective going.
In the future, but typically if you look back historically the cycles have been here three years.
Sort of.
Peak to trough and then the three year cycle on the line.
On a little longer on the positive side.
Four years.
Just as a sense of what historically happened.
Okay and then just one other question for me.
Just a quick one on the carbon tax so in Canada, it's been increasing for the last few years on it it will be increasing.
At least through 2030, I like I presume, it's still early days, but are you seeing any.
Customers like.
Their demand due to the carbon tax and when the carbon tax becomes a.
Bigger chunk of the Bill.
What's your what's your expectation on it are there other like or the other.
Our customers switching to other alternatives.
Reduced.
Okay.
I'll jump in on that one and then if there's anything that you want to add.
We haven't at this point in time.
Volume reductions associated with carbon.
Looking into the future at some point.
Perhaps that will have an impact.
Thank you Kurt.
From a pricing perspective longer term I think our expectation would be it'll become a cost to serve customers on it.
Maybe choppy how that rolls in.
On the margins and how that does.
Customers, but longer term it will become part of the underlying cost base debt.
That we would look at in determining the pricing for the customer base I don't know if that answers. Your question to the degree that you wanted to answer that.
Do you want to.
Feel free.
No I think that that's enough color on I'm I'm, just yeah, I think you've answered it in terms of you haven't seen.
Any volume reductions yet due to due specifically to the carbon tax no no no.
Okay. Thanks, I'll leave it there.
Okay. Thank.
Thank you our next question or comment comes from the line.
Why not from the National banks on ask your line is open.
Thanks, guys.
Warnock here on per pack, Kenny just like to dive into the 2021 on guidance.
So if you look at the 2021, EBITDA guidance, representing about 10% growth year over year, excluding queues.
But assuming a full year's contribution in 2021 from <unk> and your other tuck in acquisitions.
That looks more like a growth rate year over year on kind of mid single digit range. So I'm just curious if going forward that mid single digit annual growth range is how we should be.
<unk> thinking about.
Your run rate EBITDA growth over let's say next five years and you execute.
Integrate new acquisitions.
Yeah, No I think.
As I alluded to that earlier question that youre going to have the industrial and commercial markets coming back.
So you'll have more internal.
On growth.
We've lost would see would be COVID-19.
And when that comes back and you will have a good year and a half of good growth internal because of that big market coming back.
And on that same 2022 went on.
And then from an acquisition.
I don't know if your number was.
Percentage.
Uh huh.
We're.
Going on more than doubled in the states. The next if you look at five then.
So I all I know on bad six years anything comes to your mind on Oh, we could predict that yeah, I think at the highest level thinking about it.
10%.
That range, but it.
Honestly be choppy, depending on how the acquisition.
Roll in are in place and the acquisitions occur I think eight to 10 percentage is it reasonable thought.
Sure.
Okay, that's great and.
And then just one more quick one for me.
Moving on to kind of the U S. Tuck in acquisition strategy and your earlier comments about you know continuing to want to target the west coast.
Looking at California, we're kind of seeing that the state might accelerated push towards 100% renewable.
The old loans by 2030.
Or are you thinking about the tail risk for your existing business in the state and how did these policies potentially impact your willingness to transact on your tuck in opportunities in the future.
Yeah. So.
Couple of things, we've done some work to see.
See how energy could unfold in different region, including California.
And when you think of California, I think the three big cities and then you come to admire lease or two and you ended up being in valleys all the way through.
So you see you have a demand on.
Propane.
The.
Because it's hard to do electricity and they've had their share of electricity.
Problem in California, as you all know and.
People look for alternatives and then natural gas pipeline not happening. So you say, okay. What else there is nothing else.
So we're certainly looking down the future to see what are the.
More green propane that we could dive in their mix and we will be the first one on there would be certainly looking into that.
So hard to displace propane because some mobile net.
Guys that's on the thing.
Tank and it really has that flexibility and its fits in some area that you just cannot find something else to FID there.
So if you think 10 15 20 years I cannot.
Tell you that book.
The next 567 years, we just don't see it.
And we see even.
On continuous growth in the propane in many areas.
We're all not so much maybe in the mid west not so much on more co op. So that's why we don't go there first.
We have a good business model, we would make money in the Midwest, We go where we're gonna make quicker Monday faster in those two regions.
Longevity in.
Those further can dose region.
Awesome. Thanks for the color on large I'm back in the queue.
Okay. Thanks.
Thank you. Our next question My comment comes from the line of Joel Jackson from BMO capital markets. Your line is open.
Good morning, Luke.
Joe.
Can we can we look at the guidance again for 'twenty, one and 'twenty 'twenty was obviously a strange here. If we look at how much thousand 19, or 2021 perspective, it seems to be maybe a 20 million dollar EBITDA growth, maybe low to mid single digits.
Not including clean your tuck ins in 'twenty, one, but could you just tell me if that number is right.
And then could you bridge the growth from 19 to 21 Standalone of course.
In terms of organic growth.
Synergistic M&A and then synergies on that M&A.
Yeah, I don't think we're prepared to anything with all those buckets. So I'll address the internal growth and debt might have additional.
Good point.
The growth is happening in commercial.
We know our customers, taking less but the new customer and the growth is U S and Canada to 2% to 3% residential we're doing good.
But he asked me I'm glad the question I think it was Steve.
Steve.
And so on the about what's your what's your game on why do we succeed that much we're growing residential quite a lot and I think it's 4% in Canada right now because of the digital and I guess, nobody else's offering debt.
So, whereas we have that marketing that goes to consumer a different way than a touch point on the.
Digital net.
Use of eventual customer good growth. So we have a good internal growth.
More than the industry by a long shot and we're acquisition well you know what we do every year at 288 million of acquisition last year.
I don't know about the rest of the buckets I'll leave it to bet because I didn't prepay anything in.
In that regard.
Yeah sure I think.
Hopefully this is helpful at the highest level if you want to think about.
Canadian propane is going it's still being impacted in 2020.
Significantly by the headwinds from Covid.
As.
As a result of that.
We have the growth that luke's talking about from an organic perspective, but offsetting that are the headwinds in commercial industrial and oil and gas.
In addition to that in the Canadian propane distribution business. You also have the weaker market fundamental.
I am looking turning back to that three year average. So if you want to think about that from a range perspective, you probably are facing pressure in the range of roughly $30 million now offsetting that from a U S perspective, you have the growth from the acquisition.
Over the past period of time and so that.
<unk> growth overall youre looking at a.
Forecast growth somewhere between that 20% to $25. If you want to think about it maybe in the range of $40 million growth in the U S business and it's really those offset that bring you to that 390 day point.
On the guidance perspective.
If you want to think about it from 2020.
Yeah, Let me let me on the Joe to your question because I think it's good for everyone on the phone.
Preparing on Investor Day after day air cooled businesses.
Behind us.
When it comes to long term EBITDA target capital on location.
The synergy we'll make sure we prepare.
On the detail for all of you to <unk>.
We'll have more more more.
Responds to everything you can think about book.
I think that's good book I think it would be helpful to show the growth across the years depends on what you buy organic and then synergies.
So my second.
Question, just following up on something Nelson was asking about so on the purchase price adjustment mechanism.
I appreciate that you're giving the average 10 years of 170 million and then you.
For 115, one time thing or whatever.
I imagine when you did this you calculate unexpected.
Active value did you go calculate an expected value regression analysis and get an internal view of how you think that business will fail over three years and as you can.
Share is that expected value of the euro is it positive for what you think they'll get.
Our payment down the road.
Well I won't answer that but I'll say.
For sure we knew that we were getting rid of more debt because they have $112 million and article of the U S. R. F. R. F. R S.
Rail car lease so we're getting rid of more and have more cash to grow.
The purchase price.
In all we were.
Reducing the debt and what we do with the proceeds.
Oh Wow.
Probably paying less interest and then acquiring business and having a 25 per cent of the improvement.
So that is good good good on their board.
Prove that because they saw that the bigger opportunity but for us we're.
We're somewhat optimistic that the.
Three years market should come back to more normal.
And we're not making predictions on that to the market.
They tend to.
Except.
It looks good for us.
Okay. Thank you very much.
Mhm.
Thank you. Our next question or comment comes from the line of Matthew Weekes from <unk> capital markets. Your line is open.
Hello, Thanks for taking my question I was just wondering about the day.
Alright.
Monthly dividend was increased seasonality in the book.
Following the sale of specialty chemicals would you consider switching to our quarterly dividend.
Oh, I never thought of it but Beth.
Yeah, I think at this point in time.
We would I mean, we're looking at it and just leave it in the structuring that it is on a monthly basis.
I mean that being said that's the only thing that could be considered on certainly easier administration.
Administrative leave but monthly is how we've done it in the past so at this point in time.
Would be our intention and I mean, the reality is that's a board decision.
And the timing of the pads at this point I mean, we're not anticipating any change.
The dividend policy.
Okay. Thank you that's everything for me I'll turn it back.
Thank you.
Thank you I'm showing no additional questions on the queue at this time I would like to turn the conference back to Mr. <unk>.
For any closing remarks.
Okay.
Oh.
<unk>.
Wanted to.
Got to get through them, all my Q&A preparation nodes and that gets you to that conclusion.
I wanted to thank you all employees and management of superior for a great year and quarter.
Certainly very excited about what the future holds for superior as a pure play in there.
You shouldn't company I think this is a big big change for us and I'm looking at it for a long time.
Other different business, we sold over the years now are there.
Look forward to providing our next strategic plan and superior way forward in our upcoming 2021 on the Investor Day Lager question.
I'm.
You just said that you all have on the Detroit to respond to all of that in her presentation. Shortly.
Shortly.
And we will announce the detail of that event in the coming weeks.
Just wanted to take this moment also as a conclusion to take the advantage Brendan Toya vertical.
They've been with superior small.
I'm sure your time more than me and it's about 10, and they're probably in the 20 years or so.
They've been a great enterprise more volatility, but good management.
Executing on everything so well you saw on the other big project in Buckingham and it's our plan on cost they just do it the best way on.
For a long run on a ton of business from a management point of view.
Put them way up there and that's seen a ton of different industry and they're they're they're they're class Act. There was super comfort, then and I wish burchill, the great great success with them, they're getting a good company and a good team and.
Thank all of the people that are cool and the management for all.
All of those good years that they've been under superior, they're just great people and I wish them all the good luck on that.
I'll move on to the conclusion, and we are hoping to wish wishing and hoping to see you on.
And then one of the Investor day in a few months.
Thank you Ross.
Ladies and gentlemen, thank you for participating on today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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