Q2 2022 Superior Plus Corp Earnings Call
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to second quarter results conference call.
At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session.
To ask a question during the session, you will need to press star 1 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Rob Doran, Vice President of Capital Markets. Please go ahead. We're waiting here to see what he may power to fund. How do you get a
Thank you, Cherie. Good morning everyone and welcome to Superior Plus' conference call and webcast to review our 2022 second quarter results. On the call today from Superior Plus are Luc Desjardins, President and CEO , and Beth Summers, Executive VP and CFO . For this morning's call, Luc and Beth will begin with their prepared remarks and then we will open up the call for questions.
Listeners are reminded that some of the comments made today may be forward looking in nature and are based on Superior's current expectations, estimates, judgments, projections and risks.
Further, some of the information provided refers to non-gout measures.
Please refer to Superior's continuous disclosure documents available on CDAR and Superior's website yesterday for further details.
Dollar amounts discussed on today's call are expressed in Canadian dollars unless otherwise noted. I'll now turn the call over to Liz.
I'll take you Rob and good morning everyone. Thanks for joining the talk to discuss our second quarter results. Pleased to say we've maintained a strong momentum we generated in quarter one 2022 and through the quarter two. It's important to note that quarter two along with quarter three are seasonally slower quarters for business due to the lower eating load and typically together amount only approximately 10% of our annual pivot up.
Keep in mind that recently we were going to have some calls.
So if you look at the full year, we get 25% of the cost of those two businesses for this quarter, but only 10% of the sales. So no doubt that you'll end up adding it. For the timing of those acquisitions, this is how it connects for quarter two and three. So there should be a very full year of course. The full results are there and the integration plans are going extremely well.
So we're pointed to resolve or test the end of our strength in our business in the face of rising costs due to inflation but as volatility, commodity cost which has driven some customer conservation. But as we look to the events of 2022, we're comfortable in our ability to manage the impact of implementation pressures on our business by passing on these rising costs to our customers.
which is if it's in an average margin growth over the current year to year.
We saw the benefit of acquisition completed over the last year to higher volume quarter over quarter. However, we also saw higher operating expense in the quarter. Based on our strong first quarter result and second quarter result, we are confirming and are very comfortable that our adjusted middle guidance range of $425 to $465 million is right on target. We're making great progress on the superior way forward in the Douglas World Initiative requisition.
for a total of $12.9 million.
Quite small and out of acquisition.
With these four acquisitions, we're on track to achieve the lower end of our previous statement.
Excuse me for a minute.
target, excluding the camps acquisition of $200 million to $300 million in acquired assets in 2022.
We release our second annual sustainability report in June , which contains improved disclosure from an inaugural report and demonstrates our focus on prioritizing ESG in our operation.
We believe superior propane as a product will play a significant role in its transition to a lower carbon and eventual net zero emission future.
We have put an energy transition team in place to identify and develop opportunities in this space and recently hired director of sustainability.
We are working on various projects mainly focused on lower carbon propane sources currently including renewable DMD and hydrogen.
Following the end of the quarter, we entered into an agreement with Inland Tech to bring renewable DME to our customer base, providing a carbon-friendly enhance to traditional resource for pain.
In fact, plasma enhanced melter, PEM, gasification process will divert organic waste from the landfill and convert into carbon-friendly, clean-burning DNA which can be effectively blended with propane and used as an alternative renewable fuel of its own.
We are excited to enter this partnership where we will not only be able to provide carbon-friendly fuel to our customers, but we will also be reducing the waste that is usually filling our country's landfills.
According to EPA, organic material continues to be a largest component of municipal solid waste and also contributes to increased greenhouse gas being released into the atmosphere. So we will now be part of the process of recycling that waste material by converting it into clean burning fuel and providing it to our customers.
We are in a strong financial position from a debt and leverage perspective following our recent common equity insurance of growth proceeds of $288 million. The additional liquidity from the equity insurance and our stable cash flow from operations is expected to provide us with capital to continue our growth through acquisition, investment and organic growth and continuous improvement projects.
I may accelerate their acquisition in 2021 and to start 2022, our focus in 2022 will be integrating and capturing the synergy from acquire business. Again, I assure you we've had a review of those two larger acquisitions this week and everything is Globalized.
Our plan is doing very well.
We still see a strong pipeline of acquisition opportunities in the U.S. and Canada to our continent and will continue to acquire quality retail propane assets and achieve a superior way forward target of $1.9 billion. We're past about 40% of that target as we speak today. And the prices of acquisition and valuation are coming down somewhat, which is good for us.
Before I turn the call to Beth, I would like to make a brief comment on my planned retirement. As mentioned in Quarter 2 press release, I will be formally retiring on July 31, 2023, where the seasoned executive and strong team is well positioned for the future. The Board has appointed a succession committee to find a new CEO for Superior and to address the transition. I will work with the Board to ensure a smooth transition.
as we continue to build on the operational momentum through the implementation of superior way forward, initiative and drive shareholder returns.
Very proud of what we've accomplished over those past 11 years and we look forward to ziggoning our plan for the ongoing benefit of all the stakeholders.
I will now turn the call over to Deb to discuss the financial results in more detail.
Thank you, Luke, and good morning, everyone. As Luke mentioned, Q2 is a seasonally slower quarter for our business as we exit the colder winter months and our results are in line with our expectations.
Superior generated second quarter adjusted EVITA of $25.6 million, a $6 million or 19% decrease over the prior year quarter. This was primarily due to the impact from the FUSE benefit that was received in the prior year quarter and lower realized gains on FX hedging.
The decrease was partially offset by improved sales volumes and higher average margins in our Canadian propane business and higher results from U.S. propane and lower corporate costs. In addition, as Luke mentioned previously, with the camps and corals acquisitions, in Q2 we have 25% of the cost but only approximately 10% of the volume. This is all factored into superior maintaining our guidance.
for the 2022 year. As you will have noticed, we updated our reporting segments in our Q2 financial statements.
And we will be reporting the following three segments going forward. Canadian Propane, U.S. Propane and Wholesale Propane.
These segments are better aligned to the specific characteristics of our operations and will provide a higher level of detail with regards to those customer segments.
The second quarter loss from continuing operations was $85 million, an increase of $48.9 million compared to the prior year quarter. The primary driver for the higher net loss was an unrealized loss on derivatives and foreign currency translation of borrowing compared to an unrealized gain in the prior year quarter.
Turning now to individual business results, U.S. propane adjusted EBITDA was $16.2 million, an increase of $2.2 million from the prior year quarter primarily due to contributions from acquisitions completed in the past 12 months and higher margins.
U.S. propane sales volumes of 246 million litres increase 16% compared to the prior year quarter primarily due to contributions from acquisitions, partially offset by an impact from unseasonably warm and inconsistent temperatures in Q2, and customer conservation stemming from the high commodity price environment.
Canadian Propane-adjusted EBITDA was $13.3 million, a decrease of $8 million from the prior year quarter primarily due to higher operating costs as a result of the impact of the $7.8 million used benefit recorded in the prior year quarter.
Canadian propane sales volumes of 226 million litres increase 5%, driven primarily by commercial volume.
Commercial sales volumes increase due to improved oil field demand and the impact from the lifting of public health measures associated with COVID.
Wholesale propane adjusted EBITDA was $1.8 million, which was consistent with the prior year as the impact of the Kiva acquisition was offset by weaker market fundamentals in California.
Turning to corporate results, the adjusted EBITDA guidance and leverage.
Corporate operating costs were $6 million, a decrease of $2.2 million compared to the prior year quarter, primarily due to lower longer-term incentive plan costs related to the share price decline in the current quarter.
Superior realized gains on foreign currency hedging contracts of $0.3 million compared to a gain of $2.8 million in the prior year quarter due to lower average hedge rates relative to changes in exchange rates and a decrease in amounts hedged as a result of the sale of the specialty chemical segment.
Superior's total net debt to adjusted EBITDA leverage ratio for the trailing 12 months ended June 30, 2022 with 3.7 times, which is within our target range of 3.5 times to 4 times.
As Luke mentioned, we're maintaining our 2022 adjusted EBITDA guidance range at 425 million to 465 million with a midpoint of 445 million.
For the remainder of 2022, we anticipate average weather to be consistent, with the 5-year average for the US and Canada and wholesale propane fundamentals to be consistent with 2021. With that, I'd like to turn the call over for Q&A.
As a reminder, to ask a question, you will need to press star 11 on your telephone.
Please stand by while we compile the Q&A roster.
Our first question will come from Nelson Ng with RBC Capital Markets. Please go ahead. On your mark, get set, and don't forget to new Chairperson Martin tweak to Tel AvivI.
Thanks, and Luke, congrats on your retirement plans.
Congrats on your retirement plans.
First question is related to the renewable DME. I think similar to – I guess the question is last time when we talked about green hydrogen you said the margins were pretty similar to propane. Is this arrangement similar to green hydrogen where you essentially get supplied the DME you distributed and the margins are similar as well?
It's very early to be 100% sure, but I am convinced personally, even before we get customers and what's surprising for customers by the time the production comes on, very confident we'll have a similar margin.
We're into the identifying business and the lower service comes around the...
supplying tanks and fulfilling tanks and our technicians work that they do so my expectation
From what I've seen so far, the margins are going to be as good. I'm even a bit optimistic that we can try to get more because it's green and there's a lot of customers that are going to want green propane. I think there's a tweaking for us that at least what we have is margin and maybe optimistically a bit more.
The one thing that I'll just add, Nelson, is that we'll have the ability to blend the DME. So we'll have the product, we'll buy the product, and then we will blend it with propane in addition to the ability to use it as a renewable fuel completely on its own. So there's the two options. senior.
Okay, and there's probably limited capex you need to make for this, right? Right, the large capex are not on our watch. Yeah, we're buying the product.
No, I'm just thinking from an equipment perspective for blending and other things and you're just going to use the same propane trucks to make the deliveries, right? It'll be the same propane trucks but there will be a small capital requirement to have the equipment to do the blending.
With the same thing. It's just blending equipment.
Okay, got it. And then Beth, you touched on consumer conservation of energy due to higher prices. So there's two questions. I guess the first question is for the average retail consumer, roughly what was the cost increase they saw year over year? And then I guess the second part of that question is roughly what meanings they had in the past
percentage decline in demand did you see from like versus what you expected assuming a similar temperature.
Yes, so on the first part of your question from an overall cost increase on average that would be seen by the customer all in, it'd be roughly 20%.
And then from a conservation perspective, that one there is, you know, at this point in time, we're seeing some impact, but it wasn't from a percentage perspective. I wouldn't even say it's necessarily 1%. I do think as we go forward with the higher prices, there is potential for us to see more impact from a conservation perspective. Luke, I'm not sure if there's something you want to add. Yes.
You know the theory from the beginning when all the energy price went up 20% is a lot, but it's a lot when you think of filling up.
your car with energy, oil and diesel and all the natural gas. So, NetNet, we thought of their customer says, oh, the spare is charging me too much.
go back over the years, something like that, oh, they're charging me too much, I'm going to call the competitor, which is a lot of trouble to get the tank and make the change. Today I didn't expect that to come, maybe an issue too much because...
everybody knows, whoever you are today, you know that every energy cost has gone up so much that people are aware, it's not fair gouging and increasing their margin too much. So I think we have a pass this year because it's known around every segment of customer that energy costs are really going up. So one thing I can also confirm is if there's a 1% conservation...
I think what happens, I think it happens somewhat in quarter two, people might not take the fill, but when quarter three comes forward, they'll have to fill up more. So it might be that they put the thermostat down and that affects a small percentage of the customer.
I can assure you from a guidance point of view, I have zero worry that we will not cover that subways and make the same type of profit.
Okay, great color. One more question before I get back in the queue. So Luke, in terms of your retirements, what were the key factors that led to your decision to retire next year?
A couple of things. First, I'm very healthy, still full of energy and excited and love work, but I think I could have done before here, as you know, be part of an equity firm. I've done other projects that are not CO and some traveling, working, for the phase that you need to work. So maybe bringing the pace down somewhat. That was my first objective. This is where we started.
So when it comes to the company, it's a tough decision because the company is coming to the level that we...
can say, wow, you know, like the two positions we just did, we're going to improve the bottom line by 25%. You can find that and put my name to it. It happens. So I think we're in a good spot from how we execute and the team in place and the operation, the effectiveness that's coming, we have continuous improvement. Every year we keep our margin and the recession or whatever doesn't affect our industry as much as others and the team is there to really execute properly.
So when I thought about that, what's the right timing? Many of you probably don't know, I'm just seven years old, so I'll be 71 plus when this happens. And I've offered the board, I said, I'm giving you that, I'm doing this, but at the same time, if a new year becomes 14 months because of necessity, or you already become 10 because you get to that new CEO person sooner, I'm flexible to help until the end, and I want this.
company to do well and I still own a ton of stock. So it was probably maybe earlier than I would have expected for my own lifestyle, but get to a point where you say, well, maybe bring it down a notch from the fashion drive and hit first and work.
So with all that.
Thanks for the detailed, Luke. Congrats again.
Thank you. One moment for our next question.
That will come from the line of Chiwai with Dejardin.
Hi, Luke and Beth. Congrats on your retirement and the achievement you have had as a period.
And congrats on the retirement and the achievement you have had as a superior.
Maybe just a bit on that, I know it's early in the process, but what would the board be looking for in terms of the next CEO ? Is there any preference for internal versus external? Would you be looking in the US as well?
That has not been decided yet, so what happened is by me confirming with the board what I'll do and say a year, so it's like not tomorrow, lots of time, I hope we have a great year and I want to make sure we're on every aspect for the next, until I'm there and after. So for them they have to sit down and say, okay let's look at the type of CO with one, and I've not done all that work yet.
So developing your profile, organizing your search.
will come in months to come. It's not a panic or a situation that demands a rush and make quick decision because I'm giving them a year. So they're really gonna take their time to look at all the angles, how to proceed, what are the profile, and then come to those conclusions in the next.
three, four months and then move on to decide what's the right CEO for this company going forward.
None of that work has been done.
But we want to hear now that kind of sounds a bit bizarre but...
CEO of a company, I've been here 11 years or plus coming, and then we said, you made that decision, it's clear, and that's announced right away. We're a public company, we don't want any shareholder up there to know a month later. So we've announced before all the work of preparing the succession was.
The profile and the type of CO has been, the work is coming.
So we decided to announce immediately as soon as I made my decision.
Thank you, Luks. That's great, Teller. Maybe this question is for Beth. So, you know, operating costs were higher, especially in the US. So, I know you said part of it is due to the fixed cost of option by the acquisition and part is from inflation. So, I just want to see, you know, how would be the split between the increase between the two factors trying to see like what the run rate could be going forward? What will be its
I think I missed the cue myself. Yeah, I'm just trying to let me, I think I heard the question, it's just you're a little choppy from what we can hear. So are you asking when you expect to the incremental cost associated with the U.S. business, how much is due to acquisitions and how much is from an inflationary perspective or other cost increase perspective? Is that the question? Yes.
Just trying to see how much of the increase is attributable for each factor so we can look at the runway going forward.
Thank you. Yeah, so I mean maybe the best way from from an inflationary and a labor cost perspective where we've seen those those impacts overall in the business for Q2 if you want to think about it the impact is somewhere like it's in that seven to nine million dollar range.
So predominantly or primarily the rest of the cost increases would all be associated with acquisitions. A little bit for organic growth potentially, but the vast majority, I think it's reasonable to just sort of put it all in a bucket for acquisitions.
Thank you.
I was just going to say, for run rate, you could think of the cost from that perspective, but remember a lot of the costs are variable in nature as well. So the cost will still always be higher, Q4 and Q1, on an even run rate basis.
Yes, thanks Beth. I'll pop the line.
popular.
One moment for our next question.
That comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead. Whether or not you need low-level churn at a low time should be taken and it should be
Good morning Luke and Beth.
If we look at the rest of the pipeline,
for preparing tuck ins or acquisitions this year, are we pretty much done or at least done for what actually could impact 2022 earnings?
What could happen if Zoo is more small to him?
quite big, you know, when you do small pack-ins. So that could happen. When it comes to a larger size, nothing this year.
We really are focusing on the integration of the two, which is ahead of plan. By the way, of Crawl and Capps doing it faster, quicker than the 18 months we usually take. Because we ended up buying them at the wrong timing if you want, not for the next 10-20 years, but for this year, April-May.
You rather buy something in November , you get the winter. So we have, but it's giving us the opportunity to say, okay this summer let's go make this happen sooner or faster. So there will be all plans on deck to integrate properly those two size company, small touch in and then review for bigger, larger deals in the years to come. We want to keep our debt down.
So it's not much coming in the next while. And Joel, just as a refresher, I think with respect to your question, so if we did close an acquisition or we close acquisitions in Q3, we'll only get roughly 35% of the EBITDA and that happens in Q4. But as Luke's saying, if we're looking at it, it's not like there's nothing in our view of a materiality for this year or that would impact items.
Right, so the kind of guidance, what's the guidance range now which never includes future acquisitions.
at least from a future acquisition perspective, you're kind of done for what can impact 2022. Does that make sense what I'm saying? I'm asking the question the same way. Yeah, that makes sense based on what we know currently, yes. Yeah, makes sense.
The other question I have is, you know, covering the stock or company for a long time, you know, we're kind of used to what Canadian propane margins are, you know, good years, 19 cents a litre, 20 cents a litre, not such good years, 15, 16 cents a litre of gross profit per litre. And now that we've done the resegmentation, sort of it all changes.
Can you talk about kind of now what the range is now for kind of like good dynamics for Canadian propane margins and when the dynamic is not as strong?
Yeah, I think, you know, in splitting the segment, currently we're looking at it just to assume sort of leave the US as it is. With respect to Canada, if you want to think it based on the segment, you know, somewhere between 25 to 30 cents would be your range. So a challenging year, 25 cents, you know, a good year 30 cents. Really customer mix.
has an influence in Canada over where it sits within that range. And maybe, you know, the best way to think about wholesale now that we've separated out, typically wholesale those volumes will generate around 3 cents per litre.
Okay, I'll leave it there. Thank you very much.
Thank you one moment for our next question
That will come from the line of Ben Isaacson with Scotiabank. Please go ahead.
Thank you very much and congrats Luke. I'm sure it's bittersweet. Just two questions if I may. Number one on organic growth.
Can you, should we be modeling an increase in volume slowly over time without meaningful acquisition costs? In other words, do we see in certain regions that volume is increasing or market share is increasing? That's not getting kind of taken back by some of the competitors without any meaningful spend.
Okay, so if you look at Canada, there's some good growth right now because we lost some commercial......
20% of our volume, which is less margin, you know, especially the oil field due to COVID. And right now you'll see for the next two years, about 6% or 7% growth a year in that segment.
And then from a residential, we've taken up a lot of tools and we're getting internal growth and the rate of about 3% in retail Canada. So a lot of good success in Canada, internal growth versus...
Our industry may be growing only 1%. And the states were equal to the industry growth. So we're flat, we're not gaining on internal growth.
We've done a lot more work in the last six months to take all the, you know, the way we've built a business.
innovation, development, and digitalization with customers internally. We do projects in Canada, we execute. We now have a service project in works in Canada for orchestrating the distribution of the logistics and the distribution of the digital. So once we cover all the provinces in Canada, that's in works, the machine is now rolling its work and we're starting with maritime.
We cover all kinds, then we go to this thing. So, I guess what I'm saying is...
The states have done a ton of work and a lot of work on acquisition integration, I mean, number one. You're mentioned or made up of several communities that have worked on them.
and servicing the customer day to day. And then the marketing part that we have developed the machine and the best tool in Canada is now this year started to be applied in the US business and there's a coordination between the best tools and the best marketing approach by segment and we're now pushing that in the US business.
So you'll see, I think I'm expecting by next year, the US will come to more growth than industry growth. For the woman, it's not the case. If we haven't executed on their...
marketing, all of our marketing approach to the US at this stage that's where the differential between the other US growth.
That's helpful, thank you. And then just my second question, transitioning from organic growth to strategic growth. Can you just talk a little bit about the northern US states and what is the kind of long term or midterm strategy there? And the margins in that region, are they closer to the eastern US or closer to Canadian margins? How should we think about that opportunity set in terms of the timing as well? Thank you.
The RTES USA, the margins are good. There will be in the average that we discussed earlier.
Sorry, sorry, sorry. Just to be clear, Luke, what I really meant is entering the northern US state. So, you know, the Dakotas and Montanas and anything south of the Canadian border.
So you have the west coast, I would say, very good.
And the East Coast, very good. The margin when you get to the middle of the USA, more co-op, more industrial.
and less margin of opportunity.
And that's the middle of the USA. That's where we kind of start in the East and West and we have a lot of opportunity in those two, the East and West, second, middle, where...
not doing that.
So, just to be clear, the margin opportunity is probably lower in those northern US states, but presumably the volume opportunity must be quite good. I mean, they're all, they all suffer through tough winters and therefore presumably would have higher propane use, especially in those.
rural areas. Is that fair to say? So higher volume, lower margin?
I think the fact that you have a higher heating load in the northern states so that makes total sense that you would have more volume on a per customer basis on a like for like customer. I think if we look to those markets where the margins may be narrower, there's a lot of places like in particular if you think of the Canadian market where you have similar profiles when you start having the industrial type customers etc. so your margins tend to be less from that perspective.
So that's where, you know, as we're always talking about, we look to the coasts first.
Great, thank you very much.
One moment for our next question.
That will come from the line of Robert Cattelier with CIBC. Please go ahead. wave
Hey, good morning everybody and congratulations Luke on that decision. I have a related question. Oftentimes when there's an important leadership change like that, it can prompt a broader strategic review at the board level. What is your sense that the board might undertake a strategic review to go along with their CSCO search?
Yes, so we do the strategic review every year. We have one scheduled in October .
with the board can assure you that from a
continuous improvement initiative from having a good team in place and all the businesses.
corporate, adding a strategy to do acquisition which every time you acquire one you improve it by 25% there's no intention to change that.
The strategy is clear, it's functioning.
like to trade a higher multiple than we trade, you know, having a one business.
successful from a, we always execute on what we promise, but that's probably one issue that hopefully the market will understand one day and we'll get the real value. But from the strategy, from the execution, from the team, I don't see any change coming. And we just had our board meeting the last few days. None of that is on the agenda. I don't see any change coming from a strategy.
Okay, and I know it's still quite early days, but have you had any traction with customers following the announcement of the Sharbonne initiative?
No, but it's too early, but it's a good question. Meeting with them in two weeks, they want to build multi-plants and they have area and perspective of doing a lot more than one and we will be the distributor for the multi-planning on the bill. Actually, Canada and U.S., not Canada. So I'll get to know more and I want to visit the plant that they...
I expect by September to be online producing and then say, sorry, I want to go visit that.
be online producing and Sorelle, Quebec, I want to go visit that. So we're not much.
I don't know enough because it's too early, but at least we have something tangible happening before you run. There's not big dollars to it, but it's starting. And then we have a marketing development plan that's in place to reach customers and see where it fits the best and the most. Hopefully we'll know a lot more in regards to next quarter.
Okay, and last question from me. As you're probably aware, the U.S. Inflation Reduction Act contains some provisions for an alternative minimum tax. I'm not sure if you've had a chance yet to assess if this superior would trigger any of those. I'm not sure if you've had a chance yet to assess this.
that tax and what the possible mitigation strategies might be.
I think from our perspective, we're still working through some of the rules and frankly, it's not just rule changes in the US. It would be anticipated rule changes that would be occurring in Canada and some of the other areas where we are. So at this point in time, I don't think we can flag what we think the impact will necessarily be, but we are working through the process and with our various task structures that we have in place and our corporate structures and what that impact would be.
That's understandable. Thank you.
That's understandable. Thank you. Good.
Thank you. One moment for our next question.
That will come from the line of Patrick Kenny with NBS. Please go ahead. Yeah, good morning everybody and Luke, congrats on your announcement. It was the first time I missed a miss when I came to Calgary. That's right. I'll see you soon.
will come from the line of Patrick Kenny with NBS. Please go ahead. Yeah, good morning everybody. And Luke, congrats on your announcement. It was the first time I missed a miss when I came to Calgary. 11 foot series ago. That's right. Yeah.
Hard to believe it's been, I guess, over six years since the head office was moved out east.
But I guess in light of the upcoming...
upcoming transition and looking at the cash flow mix today being...
Looking at the cash flow mix today being majority US-based.
Not to mention most of the M&A opportunities are likely, south of the border as well. Just curious if you think now is a good time to once again consider a new domicile for HQ.
perhaps a US listing at some point down the road? Or do you still see Toronto as being the right place for the new CEO and the Executive Office over the long term?
Yeah, so I can send it to a question earlier. So I made the decision.
A year could be a bit more if necessary and there to help until there is somebody in place. So none of those questions have been addressed by the board. And what we ended up doing as soon as my decision was made is I tell the federal market immediately. So I'm like okay. Well this didn't work on...
Always luck and succession but none of the discussion is to one of Toronto, the state, they were 55-45% right now and just a bit more in the state. None of that has taken place. So, they have a year so it's not like...
I guess we could have worked differently if they had meeting next month.
different story, but being healthy and still passionate about doing some stuff and helping for this change.
So the whole work that the board has to do is like...
Starting now and in the months unfolding things will clarify but I haven't heard of one question or one discussion of the last board we had this week about moving to head office none of that. Now is it been six months, nine months to start to think that way? Don't know.
But for the moment it's...
This is usual, let's find a succession that's right for the future and all of the good questions are going to be addressed but in times, not done so far.
Fair enough. Maybe just back to the business and the conversation around energy prices.
and specifically the doubling of natural gas prices year over year.
I'm not sure if you're seeing any residential or commercial pockets geographically where you're seeing a slowdown in switching or connecting into natural gas infrastructure and also maybe on the industrial side if you're seeing any customers choosing to stay on propane as opposed to sourcing compressed natural gas supplies.
Beth, anything comes to your mind? Well, I mean I think from the initial part of the question whether we've seen any change in the pace of activity of companies arguably building the infrastructure for natural gas where they might choose not to. I can't say that we've seen any change in activity. Typically if there's an entity or somebody close to natural gas that would typically be the direction that they would go. I don't know that we've seen any change in activity.
fundamental change. I mean the reality is natural gas has increased a lot, all energy has increased. There could be instances perhaps where that starts impacting, but I can't say we've necessarily seen that at this point in time.
I think, you know, with respect to your question on compressed natural gas and what we're seeing, I mean, we have seen that there are some large industrial customers, but certainly that works out to a good answer if there's a compressed natural gas hub somewhere close or near where those entities are. I mean, I think from that perspective, you know, that is still developing. I don't think we've seen any difference in that pace of development right now based on the cost of natural gas.
Again, I do agree with you that pricing changes and if it settles out for an extended period of time, you would think it would have an impact on the economic decision that you make associated with either using say, propane versus compressed natural gas, but I think that would take a little bit more time for that to fall under sort of.
Thanks for that Beth. Given the high yield market remains quite fickle these days, can you remind us what other levers you might have from a liquidity perspective should you need to take advantage of a new large-scale growth opportunity? Perhaps any update on just how supportive?
here two larger shareholders are right now with respect to remaining active on the M&A front in light of the I guess uncertainties surrounding inflationary pressures out there today.
Okay, and I'll cover off the question around high yield and access to liquidity. So you know from a high yield market you're correct. I mean I think the market doesn't look the same as it did certainly when we were refinancing last year and we did our notes. That being said, I think there's still access to that market if we chose to. So there would be access from that perspective. The pricing would be a lot different than our current notes.
I think the most obvious access to liquidity is our line of credit, which we're currently only 50% drawn. And just as a reminder, we did renew and extend that just a few months ago and from that perspective we do have access to a $300 million accordion as well, just based on the current deal. So I think from our perspective, if there's something there that we want to fund that...
you know, people are supportive, certainly in all the discussions that we've had to date. So we're confident that we could go forward and find the liquidity that we require. Um, Liv, do you want to talk about the... Yeah, you can add something. Sure. From MMB and Brookfield, really like the activity of the acquisition, want to continue. I alluded to it earlier that the acquisition, the valuation are down a bit, which is good for us and...
There's no acquisition that we intend to do that is not going to be bringing a return that's good or better than the past ones.
hopefully a little bit better because the evaluation comes down. So for us, like I explained, we kind of did a great job, she did a great job with Rob and the team to position us for the long term on interest rate, which is great. So we're in a great position, but for all future acquisition, we see valuation coming down somewhat and we see total return as good or better for new future deals.
Okay, that's a great color. Thank you very much.
Okay, that's a great color. Thank you very much.
Thank you. One moment for our next question.
That will come from the line of Matthew Weeks with IA Capital Markets. Please go ahead.
Good morning. Thanks for taking my question and congratulations Luke on the upcoming retirement.
my question and congratulations Luke on the upcoming retirement.
I just want to ask about maybe potential – following the announcement about the DME and with the hydrogen as well. So, if you could just comment on what the pipeline is like, the kind of conversations you're having with additional parties on future opportunities for clean fuels distribution. And in light of the climate bill that's been passed in the U.S. and maybe seeing increased growth and sort of –
the submission to the end customer who will own the customer and will have good margin.
And the same with DME. A lot of work is getting done. First announcement, more to come. Very exciting. I think we'll be, as a large propane company, will be a...
I like us to be the lead player when it comes to modernizing our...
are offered to customers to be more renewable.
That's what I think we're going to make happen. More to come in that regard in the meantime.
Okay, thank you. I appreciate the commentary. I'll turn the call back. Thanks.
Thank you. One moment for our next question.
That will come from the line of Steve Hansen with Raymond James. Please go ahead. Come on up.
So, yes, good morning, everyone. Thanks for the time. Well, the data that you provided on the new segmentation is still a little bit limited. It does point towards some pretty significant swings in those wholesale margins. And Beth, I know you commented on sort of general ranges earlier, but just perhaps a two-part question focused on wholesale specifically is can you just remind us of the one or two key drivers we should be mindful of here that drive that margin variance? I know we often talk about regional spreads, but I'm just curious what else we should be monitoring. Thanks, Beth.
And then the second part is, do you need to actually be in the wholesale business given the lower margin profile and or is there real strategic value into having that base load business as you serve your retail business as well? Thanks.
Okay, so I'll touch the second part of the question first, which is when you're asking if there's value to be in that business. The answer is yes. We need those skill sets internally to ensure that we have security of supply. We're comfortable. The bulk of the activity that's done by that business is internal. The additional benefit that we have as we move into, as we did with California, by having that wholesale business, we also have links to the other retail.
again, you know, have some incremental margin associated with that because we need the skill set to effectively run our current internal business. So I think that's sort of the second part of the question. The first part around drivers, I think, you know, on average three cents when you look at that volume is a good number. There are levers within there, you're correct. One is just selling the wholesale volume drives a certain amount of that margin, but it is the overall fundamentals of the market.
Which you are right, there's times where there's differentials in the market or inefficiencies in the market where in particular as I would have talked about in the past, it could be very much that based on weather patterns, pricing is a lot lower and I'll talk about Canada right now, say in Edmonton, and as a result of that in the east because there's cold in the east in the winter, prices are quite high. You know, there's some arbitrage by buying out of Edmonton and then railing it to the east and using that product so that generates...
some incremental margin when that market efficiency is in place. There are also margins to be gained when there's basically differentials associated with the pricing that comes from an index perspective because we'll typically buy on index either Conway or Bellevue index and from there we will sell at RAC pricing where there's differentials so the RAC pricing would be Edmonton or Zarnia type pricing.
So what we typically will do, there are fluctuations depending on a year where those differentials are robust or if they are weaker or much more narrow which you would have seen over the past. It just would have been embedded in that margin number you were looking at from Canadian propane. And what we will do from a forecast perspective is typically the same way that we look at weather and we'll layer in five year averages, we will do the same when we forecast margins coming out of the wholesale business.
Let me add a couple of points first. We've seen it in difficult time with the rail blockage or weather being really extreme. Who serviced the customer the best by a long long shot is superior. And that's probably why to a degree we're getting more internal growth in the market overall. But the main reason or the only reason, but it's certainly one of them. And so it's a great tool and a great...
so that our competitors don't have to serve as customers properly. On top of that, when you look at the cost to serve,
the space, the storage, and the people in the office that does the work, your internal rate of return are very good.
Because you have very little cost of doing that job of procuring and servicing. So the three cents is not a big margin, but if you look at the return on investment in that business versus others, it's a bit better than the rest of other businesses we have. So it's like...
which we send doesn't show the reality here. We sell through three sends, but it costs us one send to do all the work. So it's kind of a good return on investment, and the margins are not the main factor, it's a big volume and the low cost of the infrastructure to service such business.
That's a really good perspective. I appreciate that. Just one last one actually, if I may, is just around the opportunity on the oilfield recovery side. Is there anything you can do to gather or capture more scale or market share in that business that does appear to be relatively high growth here, at least in the relatively near term? I know you've already consolidated a large part of Western Canada, so I'm presuming you've got good exposure there, but just trying to think of anything you can do strategically to advance your position as that becomes a pretty high growth vertical here for the next couple of years.
Yes, from customer to customer, it's hard to say because...
That cost of service is quite high in the margin or not, so it's not where we're happy to have those customers, we like to service them, but that's where we put a lot of time and effort on the service to build that business because we like to make better profit than that. But there is a project of a thousand-mile pipeline going into the West Coast, to the ocean and...
They need cats and they need energy all the way to the thousand miles and we want that cat track. It's going to be a long-term cat track with a big volume, which by the way, more than half the cat track is not even propane. Our sales and margin that we make, it's organized the sites for them on the line that they're building. So those having projects that are special, different, need additional type of skill, which we have in the Western Canada.
to do a project like that. So it wasn't a propane for say business. You have propane to give energy to those people that are going to build the thousand mile, but we also offer a lot of other work that goes with that. Projects like that, we're asked because we have the scale, the skill, and we're getting a good project in that regard. There is some more that we've probably maintained our customer base and it's growing very well now, which is a good thing. It's been a long time.
me. With respect to the five-year plan, I don't think you've shared any per share metrics related to that growth objective yet but I'm just curious if you have some internally you'd be willing to share related to maybe free cash flow per share or cash flow per share growth or if you'd consider adding those.
I think maybe the best way to think about it is mathematically you can just take the EBITDA and then divide it by the number of shares that are outstanding now.
Great.
Okay. I mean, earnings per share, we wouldn't typically look at that because again, it gets somewhat skewed by the unrealized gains and losses.
Yeah, fair enough. I was just curious if there was... Yeah, no, no, no. I understand the question. So I mean that's...you're right, we haven't disclosed that, but mathematically I think you can do it that way.
Okay, sure. Yeah, I just wanted to get a sense in terms of how much dilution may be contemplated as part of the strategy. And it sounds like you'd expect to keep the share count pretty tight from current levels.
That's why I was saying looking at the current amount. As we look at going forward to achieve that 1.9 over the next four and a half years, if that happens on an even basis, our view in being within that three and a half to four times, if we do that on average 200 to 300 million a year, from a liquidity perspective, we wouldn't have to look to equity. Right. Okay. That's great. Thank you.
That's why I was saying looking at the current amount, as we look at going forward to achieve that 1.9 over the next four and a half years, if that happens on an even basis, our view in being within that three and a half to four times, if we do that on average 200 to 300 million a year, from a liquidity perspective, we wouldn't have to look to equity. Right. Okay. That's great. Thanks. Thanks. Thanks for having me.
Thank you. And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Luc Desjardins, President and CEO . Please go ahead. Thank you. So, as I wrap up this call, I would like to take our management and employees very proud of all the accomplishments to the date of 2022. In a solid position to deliver the 2022 Address Dévezade Guidance, a superior way forward initiative are in work. So business as usual, things are really coming properly.
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