Q2 2021 Superior Plus Corp Earnings Call
[music].
Yeah.
Thank you for standing by and welcome to the superior plus 'twenty 'twenty one quarter results conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask a question at that time. Please press Star then one on you touched on the telephone.
As a reminder, today's conference call is being recorded.
I would now like turn the conference to your house.
Dorn, Vice President of Investor Relations and Treasurer. Please go ahead.
Thank you Valerie good morning, everyone and welcome to Superior <unk> Conference call and webcast to review.
Second quarter results our speakers on the call today will be Luc Desjardins, President and CEO and Beth Summers executive VP and CFO today's call is being webcast and we encourage listeners to follow along with the supporting presentation, which is also available on our website for this.
Earnings call Luc and Beth will begin with their prepared remarks, and then we will open up the call for questions.
Before I turn the call I'd like to remind you that some of the comments made today may be forward looking in nature and are based on superior to current expectations estimates judgments projections.
Further some of the information provided refers to non-GAAP measures. Please refer to sit here.
<unk> MD&A posted on SEDAR and superior website yesterday for further details on forward looking information and non-GAAP measures I would encourage listeners to review the MD&A as it includes more detail on the financial information for the second 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 and answer period I will now turn the call over to Luke.
Thank you, Rob and good morning, everyone. Thanks for joining the call.
Still dealing with various levels of Covid 19 restriction in their operating regions, primarily in Canada in Canada.
Also some parts of the U S and especially commercial business.
I'm proud of our team's commitment to safety reliability, and we continue to provide the social view and services to our customer we'd.
So I'd like to start with some highlights from the second quarter in recent weeks following the end of the quarter.
We have been busy in 2021, and we are in a good position to achieve our superior way forward target set out at our Investor Day, nothing has changed in our mind.
<unk> from the mid and long term or what are we going to get.
And May 2025, we hosted a virtual Investor day, where we unveiled our next strategic plan the Super Waferboard spare way forward is focused on growing our business through acquisition as well as through organic growth and continuous improvement initiatives.
At our Investor Day, We also said in our acquisition target of $1.9 billion.
Our EBITDA target of $700 million to $750 million, both targets are anticipated to be achieved by 2026.
Made great progress in our acquisition initiative in 2021 with a person at least 600 million in acquisition announced or completed including the recent announcement of time, which should be closing during quarter three.
That is a person, making 30% of our acquisition target to achieve in the first year. It is a good year because the pipeline is very robust.
And with the tax potential effect on the states. Many entrepreneurs are looking at selling their business.
We recently announced camp acquisition provides us with a significant operating platform in California, We expect should enabled us to generate a higher level of synergy when we make such a tuck in acquisition in California and surrounding states, but don't forget that the base of every acquisition, we make do there would be capped.
All three men, we do still see a line by line how are we going to get a major improvement and EBITDA of business we acquire.
Canada is one of the largest independent propane retailer in California, and the well-established business with retail and wholesale operation that should complement our existing business in California with retail location in California, Nevada, Arizona campus is expected to provide us with more opportunity to expand in the west.
<unk> U S and then to keep all camps wholesale propane business operate across 16 states in the Western U S, which is expected to further expand our reach into new territory and allow us to use our wholesale natural gas liquid expertise on a larger scale.
<unk> also has a renewable propane offering which is a product. We are excited to provide our broader customer base in the future. We expect the campus acquisition to close in the third quarter and we are looking forward to welcoming their employees and customers to the superior.
On June 16, we completed the acquisition of Freemen, guys based on South Carolina Freeman significantly increase our presents its actually doubled our presence in the southeast U S. And we expect strong synergy opportunities are several of their Friedman location are located close to our existing operation.
The north and the south of camera lineup.
It also has an attractive customer base as the business services many suburban neighborhoods.
And the South east, increasing your footprint and utilizing our back office capability of freemen is expect to increase the synergy opportunity for a pitcher acquisition in that region as well the acquisition of William in July is a great example of increased synergy opportunity following the acquisition of Friedman.
Williams also operates in the southeast.
In the second quarter, our results were impacted by warmer weather in the U S.
Here in the quarter and two unnecessary stand lower average margin in both U S and Canada, However, our strategic growth and operational initiatives are still on track with our plan.
Our trailing 12 months adjusted EBITDA as of June 30, including the pro forma EBITDA from acquisition complete and announce in 'twenty 'twenty. One is approximately $460 million and that doesn't include the synergy, which we expect on their past acquisition experience to be similar but that don't usually takes up.
Good 18 months to unfold.
Where are you seeing some modest improvement in commercial and wholesale volume in Canada as the restrictions related to Covid starts to ease in the second quarter, our EBITDAR from operations up $37 million was 11 million lower than the prior year quarter.
Currently due to lower EBITDA from operation and do your worst propane business and higher corporate costs.
We're going to talk a bit later about our long term incentive which with the stock value.
They can a.
A good $10 million extra cost that we incurred this quarter.
And the second quarter U S propane resolved decrease compared to the prior year quarter, primarily due to warmer weather and to a lesser extent higher incremental operating expense related to acquisition and lower average margin due to lower commodity price environment and the prior year.
The second quarter is a seasonally lower quarter accounting for approximately 16% of their sales, but approximately 22% of the operating expense, we are unable to come to completely flex Oliver costs.
So to give you a relativity of that.
We would prefer to make acquisition before the winter starts but as you do then you know in different times of the year and this one freemen wisdom. The spring you end up with locked list.
Volume and margin and volume.
For the quarter too, but you have the full fixed costs. So just a little bit Q, when we think quarter two for that reason.
We recently completed also contribute it contributes less than the second quarter as we pick up more of the expense and less of the sales volume.
Which comes in quarter, four and quarter one of the following year.
U S propane EBITDA from operation 'twenty 'twenty, one is anticipated to be higher than 2020 firmly due to the impact of acquisition completed in 'twenty, and then 'twenty 'twenty, one benefits from the superior way and seasonal workforce optimization initiative and realized synergies from acquisition.
These factors have been negatively impacted by warmer weather I bought a $5 million.
Or less because due to the weather, which continue into the second quarter as well as lower average unit margin related to wholesale propane fundamentals.
The impact from the strong Canadian dollar on U S. I mean, they did it.
EBITDA.
So Canadian propane result for the second quarter were higher than the prior year quarter, primarily due to the benefit from the C. O W. S and increased sales volume, partially offset by a decrease in average margin related to the wholesale propane market fundamentals and customer mix.
No our internal growth sales continue to have a good strong traction.
Canadian propane EBITDA from operation 'twenty 'twenty, one is anticipated to be lower than 2020 from you due to the decrease in sales volume and average unit margin as well as the reduction of C. O W. S benefit.
Year over year.
Partially offset by lower trading expenses, so as volume I expect to decrease due to the impact from Covid 19, and reduce economy activities in Western Canada spiritually.
We are optimistic with their covid 19 restrictions will be lifted in the late part of this year.
Allowing or commercial customer to upgrade on higher capacity, which is expected to increase for paint them out.
Quarter, two is a small quarter.
With only 16% of sales, but all the full fixed cost.
I mean, there were sales in food costs are.
Taking a quarter or a little bit skew here, which is something to take into consideration, but we're very confident in their game plan and everything is on track for acquisition and integration and therefore, the mid and long term.
So with that I'll pass.
The presentation Tibet.
Thank you Rick and good morning, everyone.
Second quarter, adjusted EBITDA was $31.6 million.
Seven 5 million or 19% decrease over the prior year quarter.
Due to lower EBITDA from operations from U S propane.
Uh huh.
This was partially offset by realized gains on foreign exchange hedging contracts and higher EBITDA from operation Canadian propane.
<unk>.
Second quarter consolidated net loss from continuing operations was $36.1 million.
Thank you.
One nine in the prior year quarter the primary driver.
With the increase in finance expense.
Which was related to the premium.
The redemption of the senior unsecured notes and decrease in unrealized gains on derivatives.
Our adjusted gross profit, partially offset by the impact of the gws in the current quarter.
Yeah before transaction and other costs for the second quarter with nine.
38% decrease compared to the prior year quarter, primarily due to the lower adjusted EBITDA.
Partially offset by lower interest expense.
Now turning to the individual business results.
EBITDA from operations was $14 million, a decrease of $13.1 million or 48% from the prior year quarter. This was primarily due to the lower sales volume in the base business related to warmer weather and to a lesser extent lower average margin, partially offset by the contribution from acquisitions.
Residential and wholesale sales volumes were consistent with the prior year quarter, primarily due to acquisition.
The impact from warmer weather.
Weather as measured by degree days across the markets, where U S. Propane operate was 14% warmer than the prior year quarter.
The second pool, there has been a five year average commercial sales volumes were 25% higher compared to the prior year quarter, primarily due to acquisitions and using a covid 19 restrictions, partially offset by the warmer weather.
Average margins were 37%.
8% lower than the prior year quarter, primarily due to short term margin opportunity.
Third quarter related to the lower commodity price environment, the impact of the stronger Canadian dollar on the translation.
Denominated gross profit.
The lesser extent the customer mix.
Operating cost increased by 8% compared to the prior year quarter.
Partially offset by workforce optimization initiative realized synergies and the impact of the stronger Canadian dollar on the U S denominated expenses.
Canadian propane.
This 23 million increased $1 eight.
8% from the prior year quarter. This was primarily due to the impact from gws.
And higher sales volume.
Partially offset by lower average margins related to weaker wholesale propane market fundamentals.
Residential sales volumes were consistent with the prior year quarter and the impact of acquisitions completed during the first quarter when offset by warmer weather.
Weather across Canada for the second quarter as measured by degree days with 14% warmer than the prior year and 7% warmer than the five year average commercial sales volumes were 6% higher than the prior quarter as Covid 19 restrictions were lifted in some parts of the country, partially offset by the warmer weather.
Wholesale propane volumes were 13% higher compared to the prior year quarter.
Marketing efforts increased third party spot principal sale propane sales.
Average margins were 13% lower than the prior year quarter due to weaker wholesale propane fundamentals.
Increasing commodity costs and customer mix operating cost decreased by 9% compared to the prior year quarter due to the impact from the dws benefit and cost saving initiatives.
Lastly, the corporate results, the adjusted EBITDA guidance and leverage.
Operating costs were $8.2 million, an increase of $1.2 million compared to 7 million in the prior year quarter, primarily due to higher long term incentive plan cost related to share price appreciation in the current quarter.
<unk> decreased 13% compared to the prior year quarter due to lower average debt levels and lower average interest rate.
Superior total net debt to adjusted EBITDA leverage ratio for the trailing 12 months ended June 32020, 133 times, which is within the superior long term target range of three to three five times in the quarter, we amended the syndicated credit facility and extended the maturity to may eight.
2020 SEC.
There are no changes to the total commitments available under the credit facility, the accordion capacity or the financial covenants in our facility.
In addition, we issued $500 million of senior unsecured notes at four 5%.
It seems from the notes along with borrowing under the credit facility and cash on hand were used to redeem.
Canadian 400 million, 525% senior unsecured notes as well as the Canadian 370 million $5, 125% senior secured notes.
Extension of the credit facility and refinancing of the Canadian senior unsecured note. It's further strengthened our balance sheet and debt maturity profile. So we're well positioned from a debt financing and liquidity perspective.
We have updated our 2021 adjusted EBITDA guidance.
Increasing the bottom end of the previously disclosed guidance range of 383.
380 million to $390 million.
New adjusted EBITDA guidance range of 390 million to $420 million with a midpoint of 405 million, reflecting the expected contribution from the campus acquisition and the impact year to date results.
You should note that the adjusted EBITDA for the first six months has been impacted by higher long term incentive comp related to the share price depreciation amounting to approximately 10 million. We would typically see this cost in the range and the six month period between two to 3 million.
In addition, the impact from warmer weather in the second quarter was approximately $5 million as well, providing some year to date headwinds from our initial guidance expectations since we forecast on a weather normal conditions.
For the remainder of 2021, we anticipate average whether it be consistent with the five year average for the U S and Canada and wholesale propane fundamentals to be consistent with what we've seen in the first six months with that I'd like to turn the call over to Q&A.
Well, thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone.
One moment please.
Our first question comes from David Newman of Desjardins. Your line is open.
Good morning.
Hey, David.
So propane inventories had been a very tight and and you've had this ongoing saga of line five.
Which curt could served us accelerate pricing into the into the winter even more versus the lofty levels. So I guess a couple of questions on the back of that.
Maybe an update on your preparation ZIP line five ish.
Shot and all and alternatives and any concern that the rise in prices could does stimulate demand, especially on our reopening which is actually a very important and what the margins initially pinched it could it be a margin opportunity.
I mean, maybe Beth you can start for the wholesale and the what you've done before line five I know something you need to on margin opportunity sure. So from a long five perspective, we have been proactive we did increase our storage and secure supply with no of course.
Sure.
And the contract with respect to the summer months.
Listen to that we were moving railcars and strategic storage locations in the east. We are currently working through and being proactive for detailed winter plan.
With respect to understanding where the line five issued since we are supposed to hear reports on a mediator finding them later in August.
So from that perspective, we are still working through and our expectation would be that we will save you a little bit more what we did in the summer in order to position ourselves well to ensure that we have to supply for our customers.
Arguably it's been an impact, Ontario, the malls, but also come back as well as Michigan and New York being that did you get some truck supply from Sarnia.
Okay.
Maybe on margin.
I don't think it will change that you know you're if you have electricity natural gas at home you can live decides to switch to something else no oral the price are high so you're looking at the customer with whom we have seen in the past is when something happened that propane the commodity price becomes very high.
There's another there's not a lot of switching what do you do as they try to call it or Oh, we have we'll call. It a few customer will call, but not much and kind of dull, but a bit more into states those customers say boy, what's going on and then I'll call. The competitors, there's a risk there we could gain them lose from that but that's a small portion of our total volume.
So but for us it's a adjusting always I called it the added value by segment, how much margin do we make on the residential commercial industrial worrying that is responsible for the propane no you get some up and down the of course no within the months you get some some.
A situation that could help us or there'd be negative so far it's been the negative.
The.
The price of the propane, but within a month or so you adjust and you keep the same margin that you should make on added value.
Insistent on that 10 years ago, when I joined here. So we're not in a commodity business, we don't take that risk I'd, rather have less customer, but we're not taking any risks on the on the commodity which would a person taste to accept that sometime you have inventory at higher prices. The prices goes down then you'll have a mark to market at the end of Monday.
Some money of that of course.
But.
Another game to take any risks with commodity.
So it would be to be to be.
<unk> I would assume that kind of in in sort of in a commodity inflationary environment that we can assume that there'll be no sort of margin opportunities and that we should probably just forecast this kind of level that we're seeing in the queue on the C. P. L. Yes.
Yes, yes, I'd, rather that we don't increase margin during that time more course and customer ask more question and if you saw I know you've seen the result of growth in the less the more intended to have some growth in the states, but in Canada, we're really humming on internal growth and we don't want to lose that.
Seen some major competitor in the states doing that and they'll probably continue to do that.
Either drove customer versus <unk>.
Short term right.
And maybe I'll just jump in here on the margin side as well.
You asked perspective, I think David the best way to think about it is we would still expect the margin to be in a range of 30% to 35% per year.
We would be looking.
Looking at 2021 of your average margin would be modestly higher than what we would've seen in 2020 for the whole year.
Come to Canada.
Said before you know what that margin range to think about is between 14 to 18.
And I think with respect to Canada as you look at the year expected at the higher end, but still potentially modestly lower than what you would have seen in 2020 for Canada.
And then just last question for me and I'll hand over the line just in terms of the margins obviously a lot of your competitors, especially the small players have suffered through covid.
They're not as big as you guys and and and now you've got this volatile commodity price and they can't they also similarly, probably can't squeeze margins anymore in the hope that they come out of the pandemic that they are you know they could actually recoup what they lost I know now you're facing this kind of.
Any pressure on upward commodity prices. So are you seeing the funnel of players.
Capitulating and throwing the towel.
No, but we've seen a more competitor becoming for sale and we have a few even in Canada.
Ah raising the flag and will take when it comes to eastern Canada will be the <unk>.
Well below the competition anymore to acquire businesses.
And then the stays the same when you look at our government regulation. When you look at our ESG. When you look at what's happened in the past two years, you know with propane.
With the blockades, which we were able to supply 100% of our customer a lot of small to mid cap companies are worth trouble.
There there is a lot more you need to be big and you need to have the scale to always insist that we do build the good is G. L. A wholesale business for all of those reasons.
And what better and the team has done in S. E. L F secure at a bit higher price. So we're paying a bit of insurance for that more liquid for eastern Canada. Due to line five didn't do well believe it's going to happen within the business up taking that kind of risk and we're planning the same kind of arrangement.
For this fall and winter so.
It helps to have a size of helps to have a.
The wholesale scale, the more and more now in California, and with Cuba, Cuba, That's weird little covers more states. So a good mix of that and the scale we have in the professional team no doubt.
There are some children, they're saying I have enough there's too much because I mean, my weight and you need a lot of people and talent and skill to address all those issues, yeah like Roberto Duran no mass very helpful. Thanks Beth.
No.
Thank you.
Question comes from Jacob bout CIBC Your line is open.
Good morning.
Good morning.
How are you thinking about M&A for the balance of this year.
Given you know with those camps acquisition.
Your iron ore through your target leverage ratios.
Yeah.
The backlog and then that can address the debt the back log is solid.
And it continues to we tend to have small mid size opportunity.
We're certainly one of the two or three strategic potential.
Potential buyer of all the people that are selling.
So in very good shape there.
So what we've presented.
And the five year plan to as you could see this here we were humming big time.
There'll be some years, where you won't be as much I think the taxes shouldn't this data's.
Got a lot of people to be jumped.
Jumping in saying, Hey, I'm going to sell in the next three years might as well do it now.
But there's no doubt we will achieve our $1.2 billion and we'll get there I always like to do things faster quicker than we expect and plan and this is looking good.
So on the other side the to continue our growth the best from the debt situation.
Yeah, and I and I think from a leverage I think your question. So at the end of the quarter, we were sitting at three three times.
Pro forma the kampa acquisition that would be roughly three seven times.
So from our perspective, and as I said before as we looked at larger transactions, which if you take freeman in camps, together thats roughly $550 million of acquisition.
From a leverage perspective, we're comfortable going up to that sort of 375 times and then having a line of sight.
Coming back down over that 18 to 24 month period.
So from our perspective.
On a continuous loop, saying theyre not.
Wrong funnel.
Typically we have seen fewer deals historically between now and during the heating season.
Find owners and businesses hunkering down.
The language.
The business done through that period. It does tend to pick up in the spring, but that being said as Luke said, we're committed to our strategic direction for that $1.9 billion of acquisition over the next five years. So the reality is we'll keep looking on them.
It makes sense from a shareholder perspective will move forward and will ensure from a shareholder perspective that we've got an appropriate capital structure.
I will say when we did NGL from a credit rating perspective, we did touch for time for a period of time without line of sight to come back down. So certainly we will make sure that we're doing what makes sense for everyone in the context, but shooting towards achieving that strategic direction.
Okay.
Up to that.
So that's the timing.
Timing I did mentioned that a bit in my presentation. What's happening is when the winter starts everybody's hands on deck every competitor of your propane company, that's doing the deal with servicing customer than the spring comes and then whoever source. So we get the calls and we go there because we do the visit then.
So you end up buying business in quarters two tree.
Our.
Net sales in the full costs, so it's not ideal.
When do you get to the fall over 12 months, you recuperate that but you were kind of forced them to an industry that you can that by doing a 12, one through it at the best time, because everybody's busy Oh wonder one that's going to work for US which is the first one I can think of for a long time, it's cam because it took us so long and it's still have you.
Sure.
Before we close I mean, we're talking quarter three so that's one we'll capture a direct timing.
Good to have one of those so.
Okay.
Sure.
Okay. Thank you for that and then maybe my second question here just on a.
Have you had any updated conversations with more Queen I mean, they're getting close to the 20% stake.
It's been awhile, where.
I intend to call them after this quarter in the on.
Traveling also to the states and I know that the C O does travel to Philadelphia So.
Hopefully we could pick the right time to meet the.
But if not we'll do it by phone, yes, I intend to call soon during the 19 range right now.
So theres still a little bit the room.
I like to have a chat with them theyre, becoming a such a large shareholder, but when they treat them well and communicate properly with them at the right time, so that nothing in the last quarter, but probably have some news in the next quarter.
But no discussion about a board seat or anything along those lines.
Not yet not yet.
Probably expecting it but not yet.
We'll see what the discussion.
I'll leave it there. Thank you very much thank.
Thank you.
Thank you.
Our next question comes from.
Then I.
Scotia Bank your line is open.
Thank you very much two questions from me the first one is.
Beth you talked about being at three seven times pro forma and historically, you've been willing to touch a four times. When you think about the opportunity set in front of you near term.
Is issuing equity a possibility or is that off the table right now.
Well I mean, I think from our perspective as I mentioned before from a modeling perspective, well, we targeted numbers like $550 million for those two acquisitions together, we're certainly comfortable.
We want to ensure that we have are double b credit rating, which we are comfortable within that range and then have that line of sight to come down I think from that question. The reality is we'll continue to look at acquisitions, we're gonna violent various pieces and then do what we think makes the most sense from a shareholder perspective.
So that's how it impacts on acquisitions as well as how it would impact of how we look at our capital structure, but again, we are we are comfortable and we do model looking at in and around that $3.75 range with that line of sight down and just to flag that three seven is pro forma with no synergies as well.
<unk>.
So.
As the synergies roll in.
It's obviously lower than its more in that range of.
Probably looking at that three five to three six times one synergies enrollment.
Great and then my final question Luke can you talk about the regulatory environment.
In Canada, and California in the U S northeast as it relates to antitrust or are there any concerns that your market share is getting too big or are you too far away. I know you had mentioned some opportunities for M&A in Canada, and I wasn't clear whether that would push up against those boundaries.
No. We are we look very good and then when you think of Ontario, Quebec, we still in the 25% range and I don't see any problem getting to the 35.40 without an issue even though we've done at southwest. So we expect the same in the east So no issue there to continue to grow.
In the states, it's absolutely like lots of room, you're it's a huge industry when you think of energy.
Representing six 7% of total energy.
So air market share I think with all the acquisition we made a.
The largest one of what 10% to 12% maybe Rob can talk to that I think 25% as the three large ones together.
There are over 1 billion of EBITDA and they only represent 25% of the market I.
I need more of a specific point the ramp on that.
No I think in most markets that we operate in there is at least 7% tenant competitor and I think amerigas has seen the largest overall in the U S. They're only 12% to 15% is the market. So no concerns there.
Yeah. Thank you.
Yeah.
Thank you. Our next question Daryl Young of TD Securities. Your line is open.
Good morning, everyone. Just a couple of quick ones from me.
First the piece of of M&A has obviously been very impressive I'm just wondering around the integration side of these deals and the synergy realization.
Would you say, maybe there's greater risk this time around than previous transactions just given there is so many going on simultaneously.
That's very good question, so and I'm going to the visit the states in two weeks and the full session on the integration of the let's say freemen. The large large one so the way I looked at it.
We know wind up the business model has developed the key P. I.
Where did the port T T R from top to bottom so I don't see any risk, but what do we do some timing who buy a million EBITDA business. The focus to wait for the next two or six months could be there because we're busy with the freemen large integration and marching onto the law.
Large one so we'll have paralleled the camps and the.
Freemen not missing a beat because they're large and then do we missed the beat on the 1 billion, though to have been doing we kept through it and do it in six months that will happen because theres. So many but trust me.
The integration and execution in my career as a <unk>.
Number one in a one day, so we're not going to let go of all of the potential.
Potential synergy of what we acquired.
Okay, Great and then maybe kind of yeah.
The $460 million LTM EBITDA number that you reported that does not include any synergies correct.
Yeah.
Okay.
Energy.
And yeah. It just takes a good 18 months and you don't do much in the winter time.
I missed the beat on customer again so.
It's an 18 month process.
Okay. So we shouldn't expect the full amount of potential synergies from all these deals to come through in 2022.
Particularly camps freemen, probably no synergies.
Well, there's always some there's always some but just take up the full 25% gain.
There's always some upfront I would call it 5%.
But then the you said theres the winter then you'd get going in the spring of 'twenty 'twenty 'twenty, two very hard at it and you start to see.
The last quarter when they took me too and then the full year 'twenty to 'twenty three.
And then just one.
A detailed question around the Capex.
The sustaining capex it doesn't look like it's changed for cancer Freeman.
It will not be updated in the future or is that sort of a run rate the 120 to $1.40.
And one more question.
Finally, 40 into a reasonable range to think about it.
We'll update that guidance for 2022, but I wouldn't expect any material changes as a result of those two acquisitions.
Great.
Those two those two owners of the business from a capex very well so the fleet.
More modern or there's nothing there's no old stuff, there's even a new plant in.
California that they were opening for retail so they've done a good job those two owner of not falling behind on our capital investment.
Which is good news.
Great. Thanks, very much everyone.
Thank you.
Our next question comes from Patrick Kenny National Bank. Your line is open.
Yeah, good morning, everybody I'm.
Just to follow up on your increased presence in California, but.
It's more related to the accelerated push a west towards renewable fuels between now and 2030.
And I understand camps I believe camps was already looking at opportunities to source renewable propane.
But would you have an update maybe on how much of your California supply might potentially come from renewable feedstocks over the next few years and then also any.
The sense as to what this could mean financially to your California franchise just based on.
The existing L CFS and other credit programs out there.
Yeah. So this is very good.
New for us in 'twenty 'twenty one.
We're.
Doing a lot of work to find out who's going to be taking plastic or their products and trust.
Turning to get them to buy or propane.
And we have good connection, California, co whats coming and we expect to be able to take Oh shoot about production for Baidu.
But to start to calculate how much of all of those plans are building to take to transform into bio propane. We know the player we're talking to them, but I wanted to capture as much as possible.
I don't know how much of the total volume would be there I know that we will not lose margin by selling by your propane might be that.
You know, we might be able to make it sweep anymore, because it's viral propane, but I don't see a reduction in our margin because of that and I can assure you that it's on the tupper either in protein number one with Beth and her neither in the Israel say who's going to do that where are they let's meet them and let us capture the volume.
When it comes to the to production.
Yeah, I think almost all of them.
To that where we are currently working on our longer term strategy to lay out what we want to do going forward with respect to that.
The reality is there is no significant customer demand, yes, really because the supply is limited.
I think you've got your synthetic renewable as well as your final propane. So will obviously go down both of those avenues and look at those.
Could be higher it look saying higher caustic demand increases interestingly right now it appears that the pricing for the renewable propane.
Is similar but of course that will change as the market changes, but it just looks that.
That's going to be something that we look at it becomes part of how we approach our procurement.
Propane in the future and then that's something that we all are working on that defined strategy for going forward.
Okay. That's great yeah, it sounds like something to keep a close eye on them and then Beth maybe just to follow up on your FX hedging so.
It looks like you're about two thirds hedged for next year, but then dropping down to maybe one third for 2023. So perhaps just could you remind us what your current EBITDA sensitivity might be for a five cent change in FX.
Also you know if you're inclined to be a bit more patient here on layering on additional hedges until you can lock in and say you know $1.30, or so or do you simply look to add hedges.
Even at the current rates just given like you said that the leverage is already at the top end of your comfort zone.
Mhm, yeah, so from an FX perspective.
Are you that we approach FX, if we will roll in over time. So we the way that their policy works is we will hedge potentially over five years, depending on where the rates are and where they sit in the context of the 20 year average. So I would if you look even historically, we would always have left here.
Two three years out that we weren't in the current year, where they want to be close to fully hedged if not fully hedged in the current year.
Fine Sam if you will.
Looked out three years, probably you're looking at exposure in the range of $10 million to $15 million in the future. If you want to think about it but that's three years out if you think about it in the context of this year, we only really have a nominal unhedged amount.
So again I, there wouldn't be a material impact on the site.
And change for the remainder of this year.
Okay, great. Thanks for the color.
Mhm.
Thank you again, if you'd like to ask a question. Please press Star then one our next question comes from Joel Jackson of BMO capital markets. Your line is open.
Hi, This Ryan Murphy on for Joel Thanks for taking my question.
I can follow up on good morning, just a follow up on that last.
FX question, I guess, just thinking about interest into 'twenty, two if currency rates hold at current levels, what kind of currency impact would there be to earnings next year.
Mhm.
Yeah from that perspective, I think the best way to think about it.
And then around the $5 million range right impacting on the unhedged portion obviously the hedged portion.
It's covered.
Right, Okay, and then just back on <unk> 'twenty 'twenty, One guide what's the expected contribution from comps. This year and then can you just walk through what other changes were made in base assumptions, leading to a 5 million increase in the guide.
And so from a Tam Tam perspective, the expectation for this year would be in the range of eight to 10 million.
And for the rest of your question, which I think was just around sort of where the upside comes from you have increase or improvement associated with the acquisitions that you've got cancer as well as freedom So think of that.
Sort of $13 million to $15 million range.
And then you have from our original expectations of the year. This is where you have the headwinds, which we face from LG as a.
<unk> of the share price were at December 31st It was sitting at 12.18, and we're now sitting.
Mid $50 range. So that is much higher than we originally expected. So that's having an impact as well as be in Q2, and we saw that $5 million of whether theres other ups and downs, but those are I'm going to say those are the three pieces that are the largest to point out.
Okay. Thank you.
Yep. Thank you.
Good question.
Thank you I'm showing no further questions at this time I'd like to turn the call back to John for any closing remarks.
So I think kind of like to thank our management and employees are very proud of all of our accomplishment to date in 'twenty and 'twenty one.
And there are actions, we have undertaken during covid 19, and continue servicing our customer.
Thank you all to participate I can assure you a feeling of where we are at.
Even with this short the small quarter that always have some tweaking more difficult to two analogs I think we're in good shape and of course, there was the 5 million. There's weather, there's a 10 million of them tip everything else is business as usual and we're expecting with the normal weather in the fall we expect.
The rest of the year to be good.
Of course, with all of those acquisition and they're a little bit of integration 'twenty 'twenty, two it's going to be moving to the next level. So on that I will thank you all for participating and looking forward to the next quarter.
Thank you ladies and gentlemen does that conclude today's conference. Thank you all.
You all disconnect have a great day.
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