Q2 2023 Superior Plus Corp Earnings Call

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Good day, and thank you for standing by and welcome to the Superior plus 2023 second quarter results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one.

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Of all your question. Please press Star one again please.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, Rob Doran Vice President of capital markets. Please go ahead.

Thank you Catherine good afternoon, everyone and welcome to Superior <unk> Conference call and webcast to review, our 2023 second quarter results.

On the call today are Alan Macdonald, President and CEO , Beth Summers executive VP and CFO Curtis spill upon president of Sitars, and Darren Hribar, Senior Vice President and Chief Legal officer for this morning's call Alan Curtis in basketball begin with their prepared remarks, and then we all.

Often 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 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.

Paul on SEDAR and superior website yesterday for further details dollar amounts discussed on today's call are expressed in Canadian dollars unless otherwise noted.

Now I'll turn the call over to Alan.

Thanks, Rob and good morning, everyone or good afternoon, I guess and thanks for joining our call to discuss our Q2 results.

This is a really important time for us and superior history.

With the <unk> transaction closing in May we've created one of the most diverse low carbon energy distribution companies in North America.

This milestone has been years in the making the team at superior has been working tirelessly.

One of the best propane companies in North America.

Divesting of noncore assets like the specialty chemicals business in 2021.

And the strategic moves to acquire scale in the propane segment as establish superior as a formidable energy distribution and marketing company and now the partnership between these two industry leaders has provided our company with a strong core business and a new engine for long term organic growth and innovation.

Since closing the transaction in May we've been working very collaboratively with the <unk> team to an insurer to ensure an effective transition.

Our priorities have remained the same since we announced the deal.

We're implementing our capital allocation strategy to accelerate growth and maximize shareholder returns on a per share basis.

We're also continuing our commitment to safety and improving our operational efficiency.

We're operating <unk> as a standalone entity, allowing some tariffs to aggressively capitalize on the growth opportunities in the <unk> distribution business, along with both our LNG and hydrogen.

We're building a joint go to market strategy between so tariffs and superior propane distribution group, which will offer our customers a wider set of energy solutions.

And we will continue to foster <unk> culture of innovation and emerging energy solutions to ensure we may remain a leader in energy distribution across the continent.

Now to be successful in executing this vision.

We knew we needed to retain a strong leadership talent that maintenance terraces success today.

Today I can confirm Curtis Philippon will remain as president of <unk> and a key member of the superior plus executive teams.

I can also confirm that the chassis as chairman of the Genco <unk>.

<unk> Chief operating officer.

We will remain in her role leading this expanding organization and finally, Dan Bertram terraces head of corporate development and one of the key architects of the transaction will be promoted to become our new Chief strategy Officer for superior plus.

Dan is a welcome addition to the superior plus executive team that will make a significant impact to our strategic planning efforts.

In 2023, so terrorists expects to generate between 185 and $195 million EBITDA Rep.

Representing over a quarter of superior profitability.

Their leadership in the <unk> distribution sector is unquestioned.

Looking to the future so terrorist positioned superior not only is the CMG leader, but as a key innovator in emerging LNG and hydrogen markets across Canada, and the United States.

As we look to 2024 and beyond.

Superior will continue to be a world class energy distribution company safely serving our customers with Pride. We were also now firmly established as a leader in the <unk> and CMG and an innovator in the emergency emerging energy sector.

Now I have invited Curtis to join US today in a moment I'll ask him to offer some comments about the <unk> tariffs and their performance in the quarter, but before I do a few comments on the quarter.

Although Q2 is typically a quiet quarter for superior I am very pleased with our results. We saw strong performance across each of our operating businesses in Canada, and the United States and improvements over 2022.

We also saw modest improvements in some key measures we've identified as a priority.

Including <unk> per share and our leverage ratio.

Our north.

Erika and propane distribution team led by Andy patent, our Chief operating officer. This should be congratulated on this excellent result.

Acquiring a group of disparate businesses, realizing the synergies and building what is now an industry leader in such a short period of time is an incredible feat.

We're very proud of superior propane and I believe we have one of the best teams in the business without their leadership, none of this would be possible.

Q2 was my second quarter here at superior since joining I've had the privilege of meeting many of you.

I want to take a moment to thank you for your time and your insights.

I'm optimistic about the future and I believe superior is incredibly well positioned.

We spent a number of years transforming the company and building a solid foundation.

Today, our next transformation, becoming a leading player across the energy distribution sector is well underway.

We have a strong asset base, a profitable and stable legacy propane business.

Leadership in the rapidly expanding <unk> segment, and we're at the forefront of the emerging LNG and hydrogen distribution business.

So with that let me introduce you to critical upon president of <unk>, who will provide an overview of their business and offer some comments about performance in the quarter Curtis it's.

Great. Thank you Allen.

Great that joined the call today. The severities team is excited to now be part of superior plus the Onboarding process has gone smoothly and I appreciate that Alan and the rest of the superior team has made it a clear priority to ensure that <unk> continues to grow its north American market leadership in compressed natural gas renewable natural gas and hydrogen.

So darius exists and thrive because the market is demanding low carbon fuels in the pipeline infrastructure to deliver those fuels is insufficient and increasingly difficult to build this inefficiency in pipeline energy infrastructure creates long term and growing in this industry for mobile energy providers one of them.

Keith the superior some success is our approach to managing and allocating our mobile storage units or MF use MSU as our specialized carbon fiber storage vessels mounted onto trailers that are interchangeable across compressed natural gas renewable natural gas and hydrogen are <unk> transport low carbon fuels and also active.

Capacity for on site energy storage.

He has represented over half of the capital deployed and there is a direct correlation between their deployment in EBIT generation.

Curious as proud of the fact that we have the largest fleet in the industry. We expect to end the year with over 700, and that's used in the fleet, which we estimate is four times larger than our next can better.

So <unk> got a third 10 years ago in Western Canada, helping customers displacing diesel fuel with compressed natural gas.

Initially our customers converted fuels to realize the cost savings offered by natural gas, but it is a focus on reducing carbon emissions increases the lower carbon intensity of natural gas versus diesel and fuel oil has become has also become a key decision factor over.

Over the years, we've achieved strong profitable and organic growth, while diversifying into several different industries and expanding across Canada, the United States.

Also adding renewable natural gas and hydrogen service offerings through our core CMG business, where.

Now looking forward to being able to leverage appropriate offering a new superior.

<unk> scale to our advantage.

Talking about the quarter, obviously, we are quite pleased with the quarter and the year to date results for severity the demand for low carbon energy has accelerated and the severe team has done an exceptional job executing on these opportunities.

Our year over year increase in EBITDA is primarily driven by our growth in our <unk> fleet and the high grading of opportunities in this very high demand market.

Turn it over to Beth to discuss the financial results. Thank you Curtis and good afternoon, everyone.

We delivered a strong second quarter adjusted EBITDA of $69 1 million pro forma results for Mr. Charron acquisition, and superior second quarter, adjusted EBITDA, including the results of the tariff from the close of the acquisition with $40 1 million.

This is an increase of $14 5 million compared to the prior year quarter driven by contribution from new tariffs in June and higher adjusted EBITDA from the propane distribution business, partially offset by higher corporate costs.

Net earnings of $107 3 million for the first six months of 2023 compared to the net earnings of $56 million. In 2022. This was $51 3 million increase.

Second quarter net loss was $39 8 million compared to a net loss of $85 million in the prior year quarter. The primary drivers of the decrease in the net loss with higher gross profit and the gain on derivatives and foreign currency translation of borrowings compared to a loss in the prior year quarter. This was partially.

Offset by higher SG&A and higher finance expenses.

Turning now and at the individual business results.

U S propane adjusted EBITDA for the second quarter with $86 million, an increase of $2 4 million compared to the prior year quarter.

Second quarter adjusted EBITDA was positively impacted by higher average margin contribution from the <unk> acquisition completed in June 2022, and to a lesser extent the impact of the weaker Canadian dollar on the translation of U S denominated transaction.

Average margins increased primarily due to disciplined margin management, and a declining commodity price environment and measures to offset the impact of inflation and rising labor cost.

This was partially offset by a realized loss on commodity hedges in the current quarter compared to a realized gain in the prior year quarter.

The higher adjusted EBITDA, partially offset by higher operating costs related to the <unk> acquisition and the impact of inflation and increased labor costs.

Bernie Sanders is less impactful in the second and third quarters due to the lack of heating demand average weather in our U S operating region with modestly colder than the prior year quarter, and 4% warmer than the five year average.

Canadian propane adjusted EBITDA was $13 6 million modestly higher than the prior year quarter. The modest increase in EBITDA was primarily due to higher average margins related to margin management initiatives to offset the impact from inflation and higher labor costs.

This was offset in part by lower volumes related to warmer weather and higher operating costs related to inflation and labor.

Similar to the U S business.

The variances are less impactful in the second and third quarters due to the lack of heating demand.

Average weather in Canada was 16% warmer than the prior year quarter, and 15% warmer than the five year average.

Wholesale propane achieved adjusted EBITDA of $5 4 million in the second quarter, an increase of $3 6 million compared to the prior year quarter. This was driven by higher gross profit related to the wholesale propane market fundamentals in California and to a lesser extent in Canada.

Higher gross profit was offset in part by increased freight costs and the impact of the weaker Canadian dollar on the translation of U S denominated operating costs.

So tariff achieved pro forma adjusted EBITDA for the second quarter of $41 5 million, an increase of $15 2 million.

From the prior year quarter of $26 $3 million. This is driven by growth in the MSC suite product management and utilization of MSG and lower cost of sales related to natural gas prices.

Tariff adjusted EBITDA from the date of close of the acquisition on May 31, 2023, with $12 6 million.

Turning to corporate results, the adjusted EBIT guidance and leverage.

Corporate administrative costs for the second quarter were $10 5 million, an increase of 6 million compared to the prior year quarter due to higher insurance costs.

Transition costs, and the impact of inflation and higher long term incentive plan cost.

This is related to the change in the share price in the prior year quarter.

Superior realized gain on foreign currency hedging contracts of $4 million modestly higher than the gain in the prior year quarter as compared to the average hedge rate were higher relative to the average cap rate in the current quarter.

Superior total net debt to adjusted EBITDA leverage ratio for the trailing 12 months ended June 32023 was three six times, which is at the lower end of our target range of three five.

The four time.

The leverage ratio declined from three nine times at March 31, 2023, driven by higher pro forma adjusted EBITDA related to Mr. Tariff acquisition and improved results from the propane distribution businesses.

We expect leverage to remain in the target range of three five to four times for the remainder of 2023.

We are increasing our 2023 pro forma adjusted EBIT guidance range from $620 million of $660 million to a range of $630 million to $670 million, which includes the two tariffs full year adjusted EBITDA in the range of 185 to 195.

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The increase in the adjusted EBITDA guidance was based on the acute care, our strong year to date results and expectation for this the tariff and propane distribution businesses for the remainder of 2023.

As we look to 2024, we still expect to achieve the superior way forward EBITDA from operations target of 700 million to $750 million by the end of 'twenty 'twenty four which is two years ahead of expectation.

With that I'd like to turn the call over to Q&A.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from Aaron Macneil with TD Count one your line is open.

Afternoon. Thanks for taking my questions Curtis since it's the first conference call for both of US maybe I'll start with you.

Okay.

We've seen the U S rig count declined by over 100 rigs a year to date, yet you've increased guidance for the <unk> business. So.

Do you see the slowdown doesn't seem to be weighing you down but I'm wondering if you can sort of give us some additional insights into how that reduction has impacted demand if at all and so in terms of specific questions and I'm wondering if you can if you've seen any reduction to CMG consumption from your energy customers or have you just increased your market share.

And if you have seen reductions to energy related demand.

As of end markets have you sort of redeployed those msu's too.

Sure. Thanks there.

So when you look at the rig count.

That is the Thats one marker for our energy side of our business, but it really is a pretty low correlation for our business. We've seen good growth driven out of the energy sector that we serve all types of ballpark the energy sector from from power applications to drilling and completions operations.

<unk> seen good activity, where we tend to see is the equipment that we provide is the is the leading edge equipment thats the last equivalent to be laid down so we're quite pleased.

Slowdown situation that we are at where the loss of equipment to be to be stopped and so that provides.

Some great growth, even in a potentially a slowing energy environment, we're not seeing that but we're seeing good growth in the energy side.

Our results continued to increase Youre seeing the result of our continued diversification strategy as we've been really focused on growing it through a number of different industries.

In particular, good growth on the utility side of our business as well as good growth on our renewable natural gas that our business.

Makes sense.

I'm not sure. If this next one is for Allen a basketball, we saw an uptick in the NCI be post quarter I'm.

I'm just wondering if you could rank your discretionary capital allocation priorities between debt reduction and CIB.