Superior Plus Corp. Q1 2023 Earnings Call
Yeah.
Good day, ladies and gentlemen, thank you for standing by welcome to Superior plus 2023 first quarter results conference call.
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Well done in automatic messages Boston Yohanan Reyes. Please note that today's conference maybe recorded I will now hand, the conference I'll, let you speak of House, Rob Doran Vice President of capital markets. Please go ahead.
Thank you Olivia good morning, everyone and welcome to Superior Pluses Conference call and webcast to review our 2023 first quarter results on the call today from superior plus our Alan Macdonald, President and CEO , that's summers executive VP, and CFO and Darren Hribar, Senior Vice President and Chief Legal Officer.
For this morning's call Alan in basketball 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 maybe forward looking in nature and are based on superior its current expectations estimates judgments projections and risks further some of the information provided refers to non.
GAAP measures. Please refer to superiors continuous disclosure documents available on SEDAR 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 Alan.
Thanks, Rob and good morning, everyone.
Thanks for joining the call to discuss our 2023 first quarter results.
Let me begin by saying just how proud I am to be here as the newest member of the superior plus executive team.
Since joining last month I've spent the majority of my time, Familiarizing myself with superior operations and meeting with members of the superior team.
The Investor community.
And industry thought leaders.
Orientation has been an incredibly insightful and I'd like to share some thoughts with you on what I've seen so far.
First the team there's no question Superior's team is amongst the best in the industry.
They've extended me a very warm welcome and the executive team have been great, helping me get up to speed with the operations, providing thoughtful insights on the issues facing the business the day to day challenges.
Our opportunities to continue to evolve.
The management teams in each of the divisions and the frontline employees have been equally warm and they're welcome.
They take great pride in showing how hard we work to create a great experience for our customers knowing the safe and timely delivery of their energy needs is critical to keeping their homes and businesses functioning.
The team is also impressed me with their commitment to safety, our senior leadership and employees understand like creating a safe working environment is a community effort.
It's not about compliance it's about commitments.
More than anything watching out for each other and working together to keep our employees customers and.
And the communities, where we operate safe.
The team has made great progress on the integration of superiors, Rick with recent acquisitions and their contribution to superior performance is not insignificant as demonstrated by a <unk> first quarter performance and superior's year over year EBITDA growth, even with the impact of significantly warmer weather.
Superior has demonstrated a history of creating value by consolidating regional and local propane distributors.
And these acquisitions underscore superior court competency in this regard as we look to continue to create value through growth and generating economies of scale.
Superior's amongst the best Ive seen at acquiring integrating and generating synergies from acquisitions.
Superior is also focused on the future energy needs of our existing and future customers investing in real impactful ESG opportunities.
As a leader in portable energy distribution.
Superior has a unique vantage point when it comes to reducing our customers' carbon footprints with low carbon and alternative energy options.
There are terrorists acquisition is a perfect example of this visionary thinking and commitment to ESG transformation.
<unk> is a perfect partner for superior.
Our progress in bringing compressed natural gas and next generation energy offerings, such as renewable natural gas and hydrogen to industrial and commercial customers will continue to grow with the assistance of superior expertise and distribution logistics.
Sales and marketing.
As well as its capital investment capacity.
As it relates to the status of the <unk> acquisition, well, we've completed our supplementary information request filings with the Canadian competition Bureau, and.
And we're working closely with the Bureau, as they review the transaction, we're confident the acquisition will close this quarter.
And I'm very pleased to congratulate Curtis fill upon the sitar CEO .
This is ty.
The entire <unk> team on.
On an exceptional first quarter.
We're excited to welcome Curtis and the team into the superior family.
And we're looking forward to working together to continue their success story.
Before I turn the call over to Beth.
I'd like to touch on important early insights I'm hearing from the investment community and industry thought leaders.
Our stakeholders are optimistic.
They believe superior has great potential a strong team and an impressive asset base.
Superior can lead the industry by effectively delivering three things.
First organic growth.
Innovate and improve operational capabilities beyond what the propane industry has traditionally seen and drive incremental growth from this impressive asset base.
Secondly continue to create value by acquiring smaller regional and local players.
It creates scale and shareholder value through acquisition.
And finally continue being a leader in the transition to lower carbon and alternative energy options for existing and future customers.
Investing in the development of ESG friendly services offerings, and adding real profitable ESG lines of business across Canada, and the United States.
Finally, I want to congratulate the superior team on delivering an exceptional quarter.
The business faced challenges from significantly warmer weather, but they focused on the task at hand safely and efficiently, making customer deliveries managing our costs and continuing to complete the integration of acquisitions, including camps Kiva and courts.
So with that I'll now turn the call over to Beth to discuss the financial results.
Thank you Alan and good morning, everyone.
I'm proud to say superior's first quarter adjusted EBITDA of $272 million was a record for us in the first quarter, even though we were negatively impacted by the significantly warmer weather during our key demand months and most of our operating regions.
The increase was 22 million compared to the prior year quarter, driven by higher EBITDA from operations, partially offset by a realized loss on foreign currency hedging contracts compared to a gain in the prior year quarter and higher corporate costs.
The first quarter earnings were $147 1 million, an increase of $6 1 million compared to the prior year quarter. The primary driver for the increase in net earnings with higher revenue and gross profit, partially offset by higher S. DNA, a lower gain on derivatives and foreign currency trends.
<unk> of borrowings and higher income tax and finance expenses.
Now turning to the individual business results.
U S propane adjusted EBITDA for the first quarter was $175 9 million, an increase of 13 million compared to the prior year quarter.
First quarter adjusted EBITDA was positively impacted by acquisitions completed in the prior year and to a lesser extent increased prices to offset inflation and the impact of the weaker Canadian dollar on the translation of U S denominated transactions.
The higher adjusted EBITDA was offset in part by a decrease in volumes related to warmer weather, whether in our U S operating regions with 14% warmer than the prior year quarter, and 12% warmer than the five year average.
Canadian propane adjusted EBITDA was $65 9 million, which was a $3 7 million.
Change compared to the prior year quarter. The decrease in EBITDA was primarily due to lower volumes related to warmer weather and the impact of this huge benefit and sale of carbon credit in the prior year quarter.
This was offset in part by higher margins related to increased pricing to offset the impact of increased labor and the impact from inflation.
Whether in Canada was 7% warmer than the prior year quarter, and 5% warmer than the five year average.
Wholesale propane achieved adjusted EBITDA of $40 2 million in the first quarter. This was an increase of $21 2 million compared to the prior year quarter, driven by the contribution from Kiva and to a lesser extent the impact from higher pricing differentials related to wholesale market fundamentals.
<unk> in California, and the Western U S.
Turning to corporate results, the adjusted EBITDA guidance and leverage.
Corporate administrative costs for the first quarter were $5 8 million, an increase of $3 2 million compared to the prior year quarter.
This was due to lower <unk> expense in the prior year quarter related to the share price decline.
Superior realized loss on foreign currency hedging contracts of $4 1 million compared to a gain of $1 5 million in the prior year quarter as superiors average hedge rates were lower relative to the average U S CAD rate in the current quarter.
Superior total net debt to adjusted EBITDA leverage ratio for the trailing 12 months ended March 31, 2023 was three nine times, which is within our target range of three five to four times.
The leverage ratio also declined from four one times at December 31, 2022, driven by lower average debt levels. We.
We expect leverage to remain in the target range of three five to four times at the close of the acquisition of <unk> based on our current leverage and through <unk> strong first quarter results.
We're updating our 2023 pro forma adjusted EBIT guidance range from 585 million to $635 million to a range of $620 million to $660 million, which includes <unk> full year adjusted EBITDA in the range of 175 to one.
$85 million.
I'd also like to reiterate that while we are waiting for the Canadian competition Bureau to complete its review of the <unk> acquisition, all economic benefits and the cash generated industry tourist business belongs to superior based on the terms of the arrangement agreement.
We also still expect to achieve the superior way forward EBITDA from operations target range of 700 million to $750 million by the end of 2024, which you'll recall is two years ahead of expectations with that I'd like to turn the call over to Q&A.
Thank you, ladies and gentlemen to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question Westar one again.
Again, thus far one wanted to ask a question.
Please standby for your first question.
And our first question coming from the line of Gary Ho from Desjardins. Your line is open.
Thanks, Good morning.
Maybe just first question on the <unk> closing just wondering if you can provide a bit more color in terms of what else is needed.
In your conversations with the competition Bureau, additional color on timing and maybe your confidence in closing the deal this quarter would be helpful.
Sure.
<unk> I just wanted to respond to the competition Bureau aspect of the question.
Yes, we continue to work cooperatively with the competition Bureau, while they're conducting their review.
As Alan stated, we've complied with the supplementary information requests.
And so we're just continuing to work with them at this point.
They may need some additional time to conduct their review, but we're very confident the transaction will be closed in the second quarter.
Okay.
And then my second question maybe for Alan.
Taking the helm for a month now step back.
Provided some of your initial thoughts just wondering high level.
<unk> of the business, whether it's legacy propane or that you.
We really liked and on the other hand, maybe processes that you hope to adjust over time.
Hey, Gary Yes, thanks for the question.
It's really early days, but.
What I would say is.
The team has been great.
It's never easy trying to brief a new CEO on the breadth of our operations like this especially as you're getting ready for an AGM in closing a big transaction.
But.
I've been hugely impressed with the quality of the team both here.
At home office, and then in Canada, and the U S.
Their ability to.
And sort of create a collection of assets I think is quite something.
So I would say that in addition to the team I mean, the asset base that we have is really impressive.
When you look too.
Next generation you go well Theres a lot to work with here in terms of assets and talent.
And then you put <unk> in there.
Equally impressive group of individuals.
Great culturally really enthused about the growth potential in future opportunities and a really good a really strong ESG story. So for me I think.
Again, I can't stress enough that it's early days, but there's a lot a lot to get your hands around in this business and it's a really positive story. So my focus right now is in.
In conversation with all of you and with other sort of thought leaders across the industry.
How do we take this impressive group of assets.
Get our our most value out of it that we can allocate our capital really wisely.
And then create a story for growth from here forward I think we got a lot to do and a lot of opportunity in front of us So I couldnt be more positive frankly.
Okay, great. Thanks for answering the color.
My last question. Thanks here, yes.
Yes, maybe for Beth.
I have a question just on leverage and it relates to your last bit of your prepared remarks, I assume there's some modest decline in the assumed debt portion for the <unk> deal just given they are retaining all the cash post announcement.
With the increased EBITDA expectations now do you think the leverage will come in maybe lower versus when you ran the math.
When the deal was announced.
Yeah.
It's an interesting question I think the way to think about the incremental cash being held you're absolutely correct. The over earnings generate more cash Theres, obviously, capex, that's being done in Mr. Tarik company, but net overall.
From a debt reduction when you look at the over earnings you probably have an additional $10 million to $20 million reduction I think when you talk about it in the context of leverage after there's some terrorists acquisition of its closed.
On a leverage neutral transaction as a result of both the debt and the equity coming forward.
Where it is going to be more positive at this point in time, my gut feel would be it's not more of an impact than likely rounding.
Either up or down, but it won't have a turn difference, but it is positive.
Okay, Okay, Alright, I, just want to make sure I understand that correctly. Okay. Thanks for your time.
Okay. Thanks.
Thanks Kara.
Thank you and our next question coming from the line of Matthew <unk> with <unk> capital markets. Your line is open.
Hi, good morning, Thanks for taking my question.
About yogurt performance from them so tourists in the quarter I'm wondering how much you think at this point and how much the team thinks it is sort of sustainable going forward and based on the contracts and the overall strength of demand.
Spending on AD that use then if there are any sort of tailwind based on.
Abnormal based on maybe the gas price or other things like that.
Sure so to kick off.
Just to commend the team at <unk> for focusing on both the organic growth as well as the efficiency on the MF use in that business, which did contribute to the strong performance.
To sort of take that amount and split it into a few pieces I think if you want to think about it roughly half of the over performance is linked to low commodity price environment. So if you think of it similar to our business. There is the ability to pick up some incremental margin when the commodity prices lower.
So that is a contributor and probably in and around think of it the range of half of what we're seeing at this point in time.
The other pieces you have sales pricing improving part of that is back to some of the contracts that were reduced in response to COVID-19 and there was a lot of work done by the <unk> team to reprice those contracts back to levels, which we be consistent with pricing prior to <unk>.
Covid. So that also contributed to higher margin per MSU that was being generated and then one of the other pieces I think is as important to flag.
As the national grid contract and that contract, which had roughly 100 msu's at site generate higher margins than some of the other contracts. So it is a good example of how <unk> has some competitive advantage because of the size of their fleet that does help overall generate higher.
<unk> MSU returns overall, so those over earnings as you said there is.
Over earnings are I don't want to call them over earnings, but very strong performance for the remainder of the year, which is reflected in the updated guidance number that we provided.
Okay. Thank you I appreciate the comment on that so it sounds like there is kind of over earning and higher returns per MSU and Bora misused at the same time and as you think about the growth in that business going forward and when you look at the market.
Do you think there is.
The market will sort of absorb any any incremental capacity.
And do you think that is.
Use our belt.
The demand is there that will essentially those we'll be able to go into market and generate a pretty quick return.
Yeah, absolutely the market or the demand in the market is much higher right now than the supply and that also helps drive the higher EBITDA per MSU currently and Thats simply because you can be very specific in this <unk> team can really choose what contracts and the higher margin contract.
The allocate BMS use too we're confident at this point in time, certainly that that market is growing faster than the number of MSU or the North American MSU fleet is growing.
Okay. Thank you I appreciate it I'll turn it back.
Thanks Matthew.
Thank you and as a reminder, laser and gentlemen, I'd like to ask a question. Please press star one on your Touchtone telephone.
And our next question coming from the line of Steve Hansen with Raymond James Your line is open.
Good morning, guys. Thanks for the time I apologies, if I missed it had some technical issues here, but I just wanted to clarify on what if any supply chain challenges might exist to getting more MSU market outside of capital deployment. Specifically are there are there limitations to get anymore I must use out there.
And just as a follow on is what kind of term are you typically looking for across the average contracts in terms of the visibility.
Cadence of earnings.
Hey, Steve it's Alan I'm going to.
Ill tackle the first part of your question and then ill.
I'll have.
I have to confess I don't know the second part.
The.
This is an emerging industry, obviously, there isn't an endless supply of MFS user trailers and theyre very technically complex.
So.
I wouldn't want to leave you with the impression that this is simply a matter of producing trailers and getting the business has a lot more to it than that but as it stands right now youre looking at about a nine to 12 month weight or lead time for new <unk> four from our supplier base.
So we're.
We're working with vendors to make sure that we have a rate supply and bringing business on way that we can handle it and of course in the interim getting as much productivity as we can out of it in terms of.
In terms of contract length I think.
Probably suffice to say that this is an emerging business.
And it's growing very rapidly so.
There isn't necessarily a standard term that's been traditionally.
Traditionally.
Established but the majority of the contracts would be would be 12 months or greater.
Okay. That's very helpful and just as a follow up if I may is around.
Again, the emerging nature of the industry. We've seen some evidence that other players are starting to get involved or if theres, even made an acquisition recently and the landscape and just curious if you are running into competition in any sort of degree of bigger thus far.
<unk> how.
How do you think about trying to protect your existing.
Market position as it stands or is there just so much room for growth that there's room for plenty of players. Thanks.
Yes.
To both we've got look.
There's lots of room for growth.
There is it's an emerging industry. So it is complicated and like I say, it's much more complicated than just the MSU supply.
The compression and decompression.
As almost virtually proprietary technology, not quite but wed like to think that <unk> does it really well so.
So I think it's going to be a balancing act between managing supply unbelievable customer service commitment to safety and then being able to do this really effectively.
Beth you want to add something to that yes, I think one of the items that I would like to add is one of the really nice things about this business is that the mobile storage units really are mobile. So one of the nice things is you have an increasingly increasingly building our addressable market the misuse can.
We moved to other parts of North America, and other industries in other sectors. So as it grows there is a lot of places that they can be moved to even if there are specific regions, where you have people building and creating some competition from that perspective. So there is certainly a lot of business going around.
And I also think it's important to remind remind everybody of the fact that these msu's can also carry both renewable natural gas as well as hydrogen and green hydrogen. So in addition, as the business grows that's also area from.
Even more.
Carbon positive or less carbon intensive industry, where we can grow into those areas as well.
That's great and I'll just squeeze one last one if I may just I apologize, but on capital allocation priorities.
Every incremental dollar of growth capital.
Do you think about it today.
Or do you think about that going into <unk> versus the traditional core business does it does.
Does it go both ways are you skewing it towards your targets I mean, how should we think about that given the growth profile, we're seeing here. Thanks.
Well I think.
Beth can speak to the particulars, but philosophically I mean, I think spirit has done a great job allocating capital and being thoughtful and opportunistic in terms of capital allocation you have opportunities that will exist within the existing superior business. So they're going to be really important we will have.
Tuck in opportunities, we obviously had.
Share buyback and.
Dividend considerations in our capital allocation strategy, and we're adding to that new growth business. So we're going to continue to do what we've always done and be opportunistic be mindful of the returns that we're getting in and use our capital to drive shareholder value I don't see any big change in that Beth what would you add to that.
Just if we want to think about for the remainder of this year I think along along that path similar to what we've talked about previously.
Based on <unk>.
Returns from an opportunistic perspective.
The returns out of the <unk> organic growth that in our mind would be the primary allocation for the remainder of this year and the reason why is when you think about the M&A.
<unk> you still have in certain instances a bit of a valuation gap because of the so quickly increasing cost of capital just resulting in valuation compression and so obviously, we have to get those expectations to meet so I think for a period of time as we've said before we probably have another six.
To nine months before we start really seeing that come together, which in theory just provides fewer opportunities looking at return levels that we potentially saw in the last few years.
That's great appreciate the time guys. Thanks.
Yes.
Thank you.
Our next question coming from the line of.
John Gibson with BMO capital markets. Your line is open.
Good morning, and thanks for taking my question.
Just first off on the <unk> guidance, how much of that hinges upon incremental MSU growth versus just sort of what youre seeing right now.
Well throughout the year.
It's an interesting question, let me just think about it I think when we look at the incremental growth for the remainder of the year.
Would be tied to spending 110 million of capital, which is factored into all of our guidance. So from a number of unit perspective, if you think about it for the whole year I believe the incremental unit addition is 81.
Okay, Great does that sort of the target going forward or would you look to sort of move over and above that in 'twenty four and beyond.
It's too early to tell to be honest.
John its Alan here.
But we will have some insight on that in the next month or two.
Fair enough and then last one for me just where are you seeing the greatest opportunities if you could rank.
MSC growth in terms of.
On the renewable side infrastructure side energy services work.
If you could kind of rank them in terms of opportunities that would be appreciated.
Yes.
That's.
It's a great question.
Unfortunately put that in the same category gives us a month or two we've got to work through with the.
Once we close as we get some work to do with.
Building the plan for the next sort of 18 months. If you think of the remainder of this year and next year and where we're going to focus from a sales standpoint with the <unk> team. So we will come back to you on that and the one thing that I'll just add for purposes of thinking about it going forward. The way we've thought about the business from a growth perspective going forward, which is linked.
To the <unk> growth rate is somewhere between 8% to 10% CAGR as we look going forward, which is consistent with our communication previously about tariffs.
Okay, Great I really appreciate the comments and congrats on a great quarter I'll turn it back.
Thanks, John good to talk to them.
Thank you our next question.
And our next question coming from the line.
Patrick Kenny with MBS. Your line is now open.
Thank you good morning.
Alan I know, it's very early days for you but.
Given one of the benefits of Mr terrorist transaction is.
Being able to share each other's rolodex across your customer relationships.
Curious to get your initial thoughts around any low hanging fruit.
On the commercial frontier.
To extend propane or CMG services to any existing large customer base or region on either side, either in Canada or the U S.
I think the lawyers sitting to my left is going to tell me that I'm not allowed to have any thoughts or considerations about joint marketing until such time as the deal is closed.
Youre right I mean, we continue to operate obviously as separate businesses. Those are things that we will focus on once we have got to closing.
Yes, I'll go back to my original comments and say look we're excited to work with the with the <unk> team to bring the best of their business in the best of ours together.
And I think we've got a lot to learn from each other and joint Rolodex is one of them for sure. So we're really excited to get started we just have to do.
Few more eyes and cross a few more cheese.
Got you.
And then maybe for Beth Youre always curious to get your your life views on FX.
Going forward and I guess as you plan to roll into <unk> cash flows as well.
Big part of their.
Their EBITDA does come from the U S. So just maybe your updated thoughts on how youre managing FX exposure going forward.
Yes, we'll approach effects in a similar way going forward as we have historically, which is we will hedge and if you look at it the way that our policy works is depending on how many years out we are how much we will hedge but in the current year. The current year cash flows we always want to be hedged.
<unk>, 90% to 110% and that will decrease out into five years, where it can be sort of from zero to 15%. So we will approach that similarly, we want predictable earnings going forward. So we will factor the <unk> business in the same way we factor in our U S business.
Okay. That's perfect. Thank you.
Thank you and our next question coming from the line of.
Nelson N ju.
With RBC capital your line is now open.
Great. Thanks.
Just a quick follow up question on capital allocation for that so.
You mentioned tariffs capex and organic growth provides the most value.
And more value compared to propane M&A.
I guess the question is how does the and CIB fit into the priorities, given where share prices and obviously the.
Increase in the share count once those tourists transaction closes.
Yeah, and I think from an NCI perspective, when we look at capital allocation similar to we've talked about it before we do look at it from.
A dynamic capital allocation model. So the NCI beer share buyback is also factored into there. So we take your point.
That from a buyback perspective, we will assess that impact form or allocating capital based on where the share prices as well. So I didn't mean to leave that out when I was talking about allocation capital allocation before that's certainly something which we said before is part of our thought process and planning as we look at capital.
Allocation on an ongoing basis, which I mean, we our Isa we reassess that basically on a daily basis.
Okay. Thanks Beth.
And then just moving to <unk>. Another question for you guys in.
In terms of the guidance of $175 million to $185 million of EBITDA.
How much visibility is there and how.
How much of that.
I would say is locked in.
From your perspective, because I know Alan mentioned that.
Most contracts are more than 12 months.
I know like since providing our initial guidance back in February you've essentially increased your EBITDA guidance versus tourists by about 25%.
Yes, I think Nelson from our perspective, I mean, we're confident in that range and we were comfortable to include it from a guidance perspective, the increase when it comes back to looking at specific contracts not all of the business has 12 month contracts, but we're very comfortable with the fact that those MF use will.
B to full capacity consistent with previously and it gets back to when we think about the industry and the fact that there's so much more demand than actual supply for the MF use.
From our perspective, and the discussions that we've had around the business.
Not concerned that we won't be able to have.
<unk> fully utilized MF use to deliver those numbers.
Okay. So.
I think you previously mentioned that the low natural gas price was a benefit in Q1. So looking forward for the rest of this year I guess, if natural gas prices increase materially then that would be a headwind.
Anything else that could be a headwind.
Going forward, obviously, I think there's general expectations for a slowdown in the.
And the economy as well.
Yes, I think from a slowdown in the economy, which was seen through.
Covid and how much volume that this is Harris business did that very similar to our propane business is very resilient in the face of recessionary condition and part of that is even from the oil and gas perspective.
Those that use the <unk> product are the most efficient so they will be the last.
To turn off so in theory, then that business is quite strong going forward from a commodity price perspective.
<unk> does assume and understands where the current forward curves. It if the forward curve changes, yes. It could result in some changes in the numbers, but fundamentally that's why there's a range of 170 525.
Okay. Thanks, Beth I'll leave it there.
Thanks Nelson.
Thank you and I'm showing no further questions in the queue. At this time I will now turn the call back over to Mr. Alan Macdonald, President and CEO for any closing remarks.
Well, let me.
Let me take a second to thank you all for your time and attention for your questions today.
To have this first analyst call look forward to.
Working with you over the many quarters to come and sharing hopefully will be lots of good news as we as we embark upon this journey together.
Wrap up with.
Taking the opportunity to thank all our employees here at superior for their continued comp contribution or success their focus on safely and reliably exceeding our customer expectations. Thank you all very much for participating on the call. We look forward to speaking with you in the future take care. Thank you.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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