Q4 2023 Superior Plus Corp Earnings Call
Okay.
Good day, and thank you for sending by welcome to the superior plus fourth quarter of 2023 results Conference call.
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I'd now like to hand, the conference over to your speaker today, Adam Kartik.
Correct.
Please go ahead.
Thank you Shannon good morning, everyone and welcome to SER Superior plus conference call and webcast to review, our 2023 fourth quarter and full year results.
On the call today are Alan Macdonald, President and CEO, Grier, Colter, CFO and Curtis fell upon E V P at superior plus and president of surcharges.
For this morning's call Alan Greer will begin with their prepared remarks, and then we will open up the call for questions.
No as I reminded that some of the comments made today may be forward looking in nature and are based on superior current expectations estimates judgments.
Rejections and risks.
Are there some of the information provided refers to non-GAAP measures. Please refer to superior continuous disclosure documents available on superior on SEDAR, plus and superior website for further details.
Dollar amounts discussed on today's call are expressed in Canadian dollars, unless otherwise noted ill now turn the call over to Alan.
Thanks, Adam let me start by saying how proud I am to be speaking with all of you today about superior plus.
Over the past three quarters.
Speaking with you about our priorities and our vision for superior plus.
We stated categorically that we were transitioning away from growth through acquisition.
Organic growth through operational excellence.
We spoke to you about the importance of having the right team in place to lead superior plus.
The team makes all the difference.
Smart skilled and inspired leaders.
Always find a way to evolve to new models and deliver sustainable growth.
We told you we value the relationships with our customers and we would be focusing on building a bigger base of profitable customers.
<unk> traditional ways of doing business delivering.
Delivering incremental growth and profitability from our existing businesses.
While continuing to reduce our costs and improve returns from our capital investments.
While in Q4 I'm proud to say, we made progress on all these fronts the.
The strength of our team our focus on operational excellence and challenging ourselves to reduce costs.
Transforming a company as complex a superior is a journey and it takes time to see the fruits of our labor.
But thanks to the hard work and commitment of the entire team, we're making progress every day.
And we believe we have a very sustainable strategy.
As Youll see in our 2024 hour work the propane division is capable of delivering very consistent results.
With a renewed focus on operational excellence and how we put the right team in place, we're confident will deliver growth in propane, while generating strong cash flow.
The addition of <unk> from 2023 created a new engine for growth for superior plus and with the integration behind US we are more focused than ever on building this business as.
As we look forward to 2024, we are optimistic that the tariffs will continue to demonstrate its potential to become a significant competitor in an emerging a quickly growing segment.
With all that we accomplished in 2023 superior plus has undergone a significant transformation and today superior stands as one of the best positioned companies in the industry.
So let me offer a few comments about our Q4 results before I hand things over to Greg.
The underlying strength of our propane business was seen in our strong Q4 results.
Despite record warm temperatures across North America, our propane Division has managed to post consistent financial returns. This is a testament to the hard work and commitment of our local teams the stability of our customer base, good management of customer churn and investing our resources wisely.
I'm very proud of our team and I applaud their commitment to our focus on operational excellence.
In Q4, so tariffs continue to execute well on its growth strategy with an impressive 21% growth in EBITDA versus Q4 2003.
Having tried to sorry, having reached a new high of 729 years.
As the end of the at the end of the quarter.
So tariff is well positioned for a successful 2024.
The team very effectively balanced demand in MSU utilization, while at the same time staying on strategy investing in new high growth segments, like RMG and expanding beyond the well site with capital investments. So with that let me turn things over to Greg to walk you through Q4 and provide some thoughts on 2024.
Thanks, Alan and good morning, everyone.
We were very pleased with the performance of the businesses in the fourth quarter.
The weather conditions were a bit challenging, but the results demonstrated great resilience despite us.
As Alan mentioned fourth quarter, adjusted EBITDA of $213 $6 million was a record Q4 for us.
And represents an increase of $31 million versus Q4 2022.
Primarily due to the contribution in terms of tariffs, which had a great quarter.
Full year 2023, adjusted EBITDA was $552 million 102 million higher in fiscal 2022 due to the addition of some tariffs and an increase in EBITDA from our propane businesses year over year.
Partially offset by higher corporate costs and losses on foreign currency hedges.
Our fourth quarter net earnings of $78 million compared to net earnings of $63 million in the prior year quarter.
Full year net earnings were $77 million compared to a net loss of $88 million in the prior year.
Similar to our growth in EBITDA year over year, the primary driver for the improvement.
For tariffs.
Earnings per share attributable to superior was 23, and 2023 compared to a loss per share of 58 in the prior year. The increase in earnings per share is due to higher net earnings in the period, partially offset by the increase in average shares outstanding.
Now turning to the businesses.
<unk> achieved record adjusted EBITDA in the fourth quarter of $47 2 million growing 21% versus Q4 22.
The growth is reflective of the larger available fleet in 2023, where the average number of MF views increased to 661 in 2023 versus 580 in 2022.
On a full year basis, adjusted EBITDA was $187 million, which meant our elevated guidance that we issued along with our Q2 results.
U S propane business produced adjusted EBITDA for the fourth quarter of $113 8 million.
Which was a decrease of $2 9 million compared to the prior year quarter.
Business saw lower volumes due to the impact of warmer weather, partially offset by higher average unit margins.
Business saw lower volumes due to the impact of warmer weather, partially offset by higher average unit margins.
Average weather in the U S for Q4 was 9% warmer than the prior year quarter.
In the prior year quarter, and 11% warmer than the five year average.
Full year adjusted EBITDA in 2023 for U S propane was $302 5 million.
An increase of $17 6 million compared to 2022, primarily due to the impact of acquisitions higher unit margins and the impact of weaker.
Canadian currency on the translation of U S dollar EBITDA, partially offset by the impact of warmer weather on sales volumes.
Our Canadian propane business produced $50 2 million of adjusted EBITDA in the fourth quarter, which was a decrease of $8 1 million compared to the prior year quarter.
Similar to the U S. The decrease was primarily due to lower volumes from warmer weather and to a lesser extent the impact of divesting the northern Ontario assets, which was partially offset by higher average unit margins to offset the impact of inflation.
You'll recall as part of the closing of this or tariffs transaction. We are required by the Canadian competition Bureau to divest our various propane assets, Northern Ontario, which were sold in November 2023.
Hi.
In Canada average weather for Q4 was 13% warmer than the prior year.
And 13% warmer than the five year average.
Full year adjusted EBITDA in 2023 for Canadian propane was $133 9 million a decrease of $10 9 million compared to 2022, primarily due to lower volumes due to warmer weather the impact of divesting in northern Ontario business.
And the impact of inflation on expenses, which was offset by higher unit margins.
The wholesale propane business generated adjusted EBITDA of $16 3 million in the fourth quarter, a decrease of $6 4 million compared to the prior year quarter, which was primarily due to weaker market differentials compared to compared to the prior year quarter.
Full year adjusted EBITDA in 2023 for wholesale propane was $63 4 million, an increase of $14 7 million compared to 2022, which was primarily due to the impact of the kita acquisition and exceptionally strong market fundamentals compared to the prior year.
Turning to corporate results and leverage.
Corporate administration.
Costs for the fourth quarter were eight zero.
Which was a decrease of 3.0.
Compared to the prior year quarter, primarily due to lower incentive plan costs with the lower share price and also lower insurance per guidance.
Superior realize the higher loss on foreign currency hedging contracts of $5 9 million versus a loss of $4 1 million in the prior year quarter of course, these hedges offset favorability in our U S dollar cash flows.
On a full year basis corporate administration costs were $34 3 million, an increase of $8 4 million compared to 2022.
Primarily due to costs related to the Onboarding of new management.
For the full year superior realized losses on foreign currency hedging contracts $9 2 million compared to $2 seven in the prior year.
Our leverage ratio for the trailing 12 months ended December 31, 2023 was three eight times an improvement from four one times a year earlier.
This number will continue to move around somewhat from quarter to quarter due to the seasonal nature of the business. Our objective is to continue to improve this metric with a long term target of 3.0 times.
Before I turn to the outlook for 2024, and the board has approved a quarterly dividend of <unk> 18 per share.
So looking ahead to 2024.
The company is expecting adjusted EBITDA growth in 2024, or approximately 5% compared to the 2023 pro forma adjusted EBITDA of $643 3 million.
Or U S dollar $475 5 million.
Included in the ex factory growth, we're assuming 15% to 20% EBITDA growth for our <unk>, Paris, and 1% to 5% EBITDA growth for each of our U S Canadian and wholesale propane businesses.
Note that in the case of the Canadian propane business that we have normalized the sale of the.
Northern Ontario assets in the prior year comparative number.
Calculate the range and that's about <unk> dollars 7 million.
And in the case of the wholesale business, we have normalized the impact of the unusual market differentials experienced in 2023 to calculate the growth range and that's about a U S dollar $10 million.
Lastly, we are anticipating approximately $25 million.
Corporate operating costs.
I would expect capital expenditures to be approximately.
U S dollar $230 million westar tariff, making up just over half that amount.
Lastly, effective January one 2024.
Superior will begin reporting results in U S dollars <unk>.
Hurting our reporting currency to U S dollars will reduce foreign exchange volatility as approximately two thirds of our EBITDA and over half of our debt is denominated in U S dollars.
Historical comparative financial information in U S dollars can be found in our 2023% fourth quarter MD&A.
And with that I'd like to turn the call over for Q&A.
Thank you.
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Please standby Louie dipalma Q&A last quarter.
Yes.
Our first question comes from the line of Gary Ho with Dave Sheridan Capital markets. Your line is now open.
Thanks, and good morning, maybe just on the first question.
You had pretty strong margins. This quarter just wondering if you can share the competitive landscape on the ground.
Your competitors also maintaining at higher prices.
Still a rational market maybe talk about the different regions and Alan you mentioned in your prepared remarks your.
Team is managing churn pretty well maybe you can elaborate on this and how are your attrition rates looking versus.
Versus previous years.
Hey, Gary.
Thanks, and good morning.
I want to be careful about giving up too much specificity of specific data when it comes to their customer numbers, but.
I'll tell you where we're managing.
Our margins with a view to the impact that has on customer acquisition. So our ability to grow our customer base and then of course, how well we are managing our churn. So we're not.
Going to the well on margin.
And driving customers away.
I can say overall I'm really pleased.
And in pricing optimization, as we look to making sure that we're capturing the impact of inflation.
Prices, sometimes go up but when you're managing it.
Our view to acquiring customers and not turning them.
Spot, so but by default, where we're doing really well competitively so I'm feeling pretty good about where we are.
Okay, Great and then Chris a question for you.
On the MSU adds seems like pretty healthy growth for 2024.
Does your backlog look do you anticipate any delays putting those emmis used to work in a second and last year you guys benefited.
In early 2000, <unk> due to lower net gas prices. It seems like I was going through that again.
Just wanted to get your views on that.
Okay. Thanks Darren.
And MSU perspective, Youll see us, adding MSP is correlated with the 15% to 20% of growth.
Greer adopt ROFO expecting consistent profitability of the entities are adding.
The team is pretty confident on getting those deployed we've got a backlog of projects waiting for US right now and it's more a factor of just timing of getting them from the suppliers.
We're sold out situation here right now.
And just looking forward to getting this back into the fleet one.
One comment I'd make on the additions of the embassies. The theories we had a fairly back end year loaded for adding MSU as last year.
We came in at the back end of the year, partly due to the timing of getting the deal closed and things like that.
<unk> 2024, we would expect a more even add of MSC is a third year.
And Curtis can you maybe talk about the lower Nat gas prices is that going to benefit kind of Q1 results.
Yes, good luck for the most part Natgas prices are effectively a pass through with our customers and so whether we're somewhat indifferent.
And that means that there are a few unique situations, where there is some margin opportunity with low Nat gas prices and so we have seen some of that in particular.
On West, Texas, while our pricing when it gets quite low there is some.
Interesting opportunities for margin on that but I'd say in the overall impact of it is not not really material overall, it's a pretty small part of the number.
Okay got it and then just my last question.
Just on your point too.
Deleveraging target for 'twenty, four maybe walk me through kind of the components to get there.
Any debt repayment there at all or is this primarily driven by your projected EBITDA growth and are you assuming any buybacks in that leverage reduction.
Yes so.
Okay. So I think that the.
The Delevering Gary the most part it will be driven by EBITDA growth from the business will be lost from outright.
<unk>.
We're also looking and managing the working capital in the business very carefully.
So that will come from from that.
With regards to buyback I would say that.
Our priority here is to make.
Make sure that the businesses have the right amount of capital.
Two to grow.
To maximize our medium and long term value.
And we're obviously.
Got our deleveraging.
Very high priority and I think.
So it was really set that really high for us in terms of our priorities and so.
The reality is.
Buybacks, if any will be pretty minimal.
Because from a prioritization standpoint, they come after those things if that makes sense.
Yes, absolutely okay.
Thank you.
Thanks, Gary.
Thank you. Our next question comes from the line of Aaron Macneil with TD Cowen. Your line is now open.
Hey, good morning, Thanks for taking my questions.
Alan just one similar to Gary's question, you, obviously made a big change at the top of the propane division this quarter.
Spoken about the optimization.
So where exactly are you in this process.
Are you just at the stage, where youre getting the right people in the right place.
Q4, our Q4 margins and indication of things you've already done or.
Is there something specific you can point to that you've changed that we'll see flow through in the next few quarters.
Please standby.
Ladies and gentlemen, please continue to standby.
Speakers you may resume the call Sharon you May continue with your question.
Hey did you guys hear the question do you want me to repeat it.
Okay.
Didn't hear it sorry, our line dropped Darren could you repeat that repeat it yeah no problem. So this one's for for Alan focused on.
The propane division, you've obviously made some changes there.
You've spoken about optimization in the past.
So could you just give us a bit of a sense of where youre at in this in the process. I mean is the focus so far on getting the right team in place.
Is Q4, an indication of.
Improving margins from optimization efforts or is there something specific that you can point to.
That superior has changed to improve profitability that we will see.
Through in the next few quarters.
Hey, Eric.
I would say that.
Q4.
It's really our starting point I mean, we've been focused on understanding what the opportunities are in the business and the best way to get out.
And then having the right team in place to make that possible can you hear me, okay by the way.
Yes, loud and clear.
Okay.
So early days.
What we've done really now is set ourselves up to say, we know what our priorities are and theyre going to be very straightforwardly I talked about in the call. It's about we've got a great team of in this propane organization a great team.
And what they need from us.
Clarity around what our priorities are.
And the resources to help it.
Extract the value that we all know was there and thats, just really doing the basic blocking and tackling really well.
Acquiring customers optimizing the pricing and managing return all while youre keeping in either.
Really good decisions around capital investment and managing your cost so with the work that we did in Q4 I would say that the business is very very stable. The team is really engaged which is really good news.
We've got line of sight into where those opportunities lie analogist about.
Blocking and tackling just getting in there doing the work so what youre going to see I think is for stability that improvement and then.
Our continued new level of performance expectation for us.
This business has a lot of legs. This is lots and lots of opportunities. So it's incumbent upon us to execute well be really focused to be mindful of not having too many things to do.
And.
Investing wisely so.
No big Bangs and but also I would say this is the starting point certainly not the finish line.
Makes sense. The next one is for Curtis.
And maybe just ignoring demands which seems pretty robust.
What do you see is that.
Governors to your growth from an internal perspective like is it supply chain people infrastructure.
I can appreciate that you've grown more in percentage terms in the past it sounds like youre pretty confident that.
All the growth this year will go to work at good economics, but do you start to worry.
That youll see inefficiencies in the business either through utilization of profitability.
Just given how large the growth is in absolute terms this year.
Thanks Darren.
From an overall growth percentage this.
This is not one of the bigger growth there through <unk>.
The bigger percentage increase in the previous years until the organization is.
Quite used to a growth mindset.
When I look at what we've got in front of us.
Where is the opportunity and where is the challenge.
The biggest bottleneck to growth with just the time it takes to build up teams to both support.
Equipment.
Highly engaged differentiated workforce, but both delivered in the <unk> hydrogen for us. It takes time to build up those teams in different regions and the scale up to support the new equipment coming out.
Where we spend the majority of our time.
Makes sense I'll turn it over thanks guys.
Thanks, Eric.
Thank you as a reminder to ask a question at this time. Please press star one on one you touched on telephone.
Our next question comes from the line of Robert <unk> with CIBC capital markets. Your line is now open.
Hey, good morning, everyone I just wanted to follow up Alan on the propane business and how you plan to wring out more efficiencies there.
You talked about the blocking and tackling so it sounds like there is a number of things are after but what are the measurable operating or financial metrics that you are most closely following to measure. Your success. There does it really just come down to unit margins or is there something else that we should be tracking.
Hey, Rob.
Well.
Good luck.
Unit margins are up plumbing indicators when it comes out because.
Yes.
We need to be focused on.
Profitable businesses and profitable customers not necessarily volume and to be honest volume is going to fluctuate, obviously with weather and the quality of the customers that we take on.
So for us.
Let's build a really strong customer base, when we talk about organic growth.
Acquiring more customers, but given it with an eye to profitability.
So.
For us it's.
If we can continue to build our base organically and let's be let's be clear. This is about taking share.
It's a modestly growing segment, but we think with the right focus.
Really really well positioned to take share from our competitors, we've got great assets.
So transformation from an M&A focused organization as you would expect means all are a lot of our expertise and our focus has been on integration and synergies and now Thats got a ship to being about.
Doing great marketing being greater acquiring customers being greater pricing effectively making sure that our customers are profitable managing churns.
So very long winded way of saying the size of the health of the customer base is what I'm, most concerned with and Thats going to translate into great financial results effective use of capital and good margin management. So that's how I'm thinking about.
Okay.
That's helpful.
And I have a number of financial questions here and I don't want to block the call down too much. So.
We have taken some of these offline that's fine.
Just Greg I just wanted to.
Talk about the guidance I assume your guidance is based on the five year average weather can you please confirm that.
Yes, good question Rob.
So it is based on the five year.
Average weather however, we did adjust it.
For year to date warmer weather that we've seen so.
We've obviously seen it warmer so far this year relative to the five years. So we.
Just about the release date essentially so.
It's been kind of brought current but for the remainder of the year. So from this point forward, yes, it would be based on a five year average.
Okay. That's very that's very helpful context, and then.
I just want to talk about the.
The plan to report in U S dollars.
First of all.
What are you going to do with your hedging.
What's the plan for their for currency hedges and is there a possibility that you monetize some of the unrealized currency gains.
So yes, so obviously.
Obviously, the exposure goes down pretty significantly.
Yes.
The U S dollar snapper obviously.
You've got exposure on the Canadian side, it's now kind of third roughly of our.
EBITDA of course, then we get into a conversation about whether you actually add debit. So if you actually look at our cash flows.
After debt costs.
And taxes.
We don't have.
So thats kind of an exposure certainly if you look at it relative to EBITDA. So our thinking at this moment is our economic exposure there.
There is not that significant.
Probably will not.
Not do hedging I mean.
May change and we'll continue to evaluate it but we're we're no longer thinking we'll hedge avatar.
Our previous practice, so a we got lower exposure be the concept of hedging out it does probably not something we'll they will be more focused on economic or cash flow hedging our balance sheet hedging if we do it at all but at this point there is no hedging on.
There is no positions on to hedge the Canadian exposure as we.
Our sitting here.
So we had some some hedges on from the legacy.
The U S dollar exposure, while we are in Canadian dollars per quarter, we crystallize those.
The first of the year.
And there.
I don't have the number in front of me exactly its order of magnitude roughly $10 million of losses that are crystallized that would've been running it for you, but obviously these tenders were no longer relevant so we crystallize them and put that behind us.
Okay.
Last question Im getting into the weeds here, but but.
What is the impact to adjusted EBITDA of no longer including the hedge contracts.
Adjusted EBITDAR segment profit, presumably you.
<unk> already adjusted the guidance to take that into.
Into consideration.
Yes, I mean, so if you look at the way we had it before kind of like in the last quarter is probably the Best example, you've got.
<unk> losses, but of course, there is higher earnings coming through the EBITDA and the business lines and so there is an offset.
Going forward there.
There would not be hedges and remember exposed obviously too.
Now the Canadian dollar obviously.
<unk> that in.
Our results all things equal would be a little bit better right.
But there'd be no offset or.
Not yet.
Okay. That's great. Thanks, very much everyone.
Thanks, Rob Thanks, Rob.
Thank you. Our next question comes from the line of Daryl Young with Stifel. Your line is now open hey.
Good morning, everyone.
Just a quick one around <unk> I'm just wondering if you can give us a bit of color on the customer.
And specifically, which end markets are absorbing the new incremental M&A.
And I guess the background would be wondering if the utilities are taking a bigger slug in the end if the cold snap in January that Eddie.
Impact on utilities appetite for backup backup sources.
Yeah. Thanks, I think the big one of the big customer segments. We look at is that utility based in LTC is right across Canada and the U S.
Facing challenges of infrastructure that they've got gaps in their infrastructure and one of the biggest growth areas versus the garrison, helping the LDC is bridge those gaps and their infrastructure. So I wouldn't say that we necessarily have a specific weather impacts bike.
Last few months related to that but more of an ongoing challenge that all of these LDC base in that we're not building new infrastructure up the pace, but needed for energy demand that they're needing to find creative ways to bridge gaps in their in their infrastructure.
Increasing our superior gets to be more well known for that work were being call. It to be brought in a very large scale projects that are high profile, but also just a lot of smaller situations that virtually every LDC in North America faces, whether they need some sort of a reinforcing in their natural gas pipeline networks, either short term or.
Our long term to sort of make sure our customers are getting their energies. So increasingly that is a very significant part of our business that it will be one of the biggest growth areas for next year.
Okay. That's great. Thanks, Thanks very much.
Thank you.
Our next question comes from the line of Patrick Kenny with National Bank Financial Your line is now open.
Thank you good morning, maybe just to follow up on the customer mix question, there for tariffs, but specifically the.
Curtis the 20% plus ROIC that you've been generating here Im wondering how youre thinking about potentially trading higher returns for longer duration contracts.
For example, the ldcs.
And whether or not.
Over the next couple of years, we might see.
A slight shift in your cash flow quality profile.
Okay.
You'll see that over time as you get into more contracted product.
One the one Prime example of that would be in the renewable natural gas based on the typically those R&D projects that we're getting into they are looking for long term contract commitments.
That is a different.
Economic structure for those types of contracts and you have sort of five year potentially longer than five year contract terms on those but.
They can be structured a little bit differently to ensure the returns we're looking for but.
You, obviously prices are a little differently than you would see a spot deal.
And sorry, if I missed it but.
The current <unk>.
Percentage of customers that are oil and gas based.
Maybe.
Where that's headed over the next say one to three years.
Yes. It is still the majority of our business. So just over half is.
Oil and gas drilling and completions activity, but we've seen significant growth in those other segments.
But I like to always keep providing people that over the last couple of years.
When deploying the majority of our capital into this beyond well plate applications just to make sure we're continuing to diversify the business.
We expect to see that again in 2024 with the majority of the capital going into the beyond while plate applications.
Saying that our oil and gas business is a great business. It will continue to grow we just no long term debt.
They'll benefit regulatory they've got a very diversified portfolio.
Yes.
Okay. Thanks for that and then maybe just for Greer.
On the leverage target.
<unk>.
Achieving your three times ratio mainly from from growing EBITDA.
EBITDA, but I'm wondering your thoughts around asset sales is potentially being part of the plan too.
Accelerate that timeline to reach your target level.
Thanks, Patrick.
So currently it's.
Our target to get two to three times, we think we can do this in roughly three years.
And we don't we wouldn't need to rely on on asset sales I think so there are no plans I think we like the businesses, we have we like the footprint.
Theres nothing that were actively looking to sell.
Obviously like.
Certain prices anything is for sale, which kind of goes without saying, but I'd say theres nothing that we have on the path and don't need to do that to achieve our objectives.
Okay. Thank you.
Thank you I'm currently showing no further questions at this time I would like to hand, the call back over to Alan Macdonald for closing remarks.
Well.
Thanks, very much everybody. We appreciate obviously the time and engagement.
On our business here.
I'd like to take the opportunity to thank all of our employees at superior for their continued contribution to our success their focus on safety and reliably serving our customers. If it wasn't for our employees none of this would be possible.
Thank you for your participation and look forward to speaking with you all through the course of the next quarter.
Have a great day everyone.
Operator.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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