Superior Plus Corp. (SPB) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of -- Superior Plus Corp. Annual General and Special Meeting 2021. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to David Smith. David, the floor is yours.

Thank you. Ladies and gentlemen, good afternoon, and welcome to the 2021 Annual and Special Meeting of the Shareholders of Superior Plus Corp. I'm David Smith, and as Chair of the Board of Directors of Superior Plus, it is my responsibility and privilege to act as chair of this Annual General and Special Meeting. In these unprecedented times, the health and well-being of our shareholders, employees and customers continues to be our top priority. In support of ongoing public health efforts to manage COVID-19, we are holding this year's meeting virtually again. However, it is important to us that we meet in person with our shareholders, and we intend to resume our in-person Annual General Meeting next year if we are permitted to do so. Naturally, the virtual nature of this meeting will have an impact on the way the meeting is conducted, which I will explain shortly. Our goal is to replicate as best we can the experience you would have had if we were meeting in person and to preserve the rights of shareholders and proxy holders to address the meeting and to vote on each of the resolutions before the meeting. I welcome our registered shareholders and all guests that are joining this meeting today through our virtual Annual General and Special Meeting platform. We are excited to have your virtual participation in the meeting, and thank you for your interest in the affairs of Superior Plus. This meeting is being live webcast as well. There's also an accompanying presentation for the formal part of the meeting, which is viewable on the virtual Annual General Meeting platform and on our website at superiorplus.com. Please note the presentation is self-directed, so I will be referring to slide numbers as we move through the meeting. Also joining me at this meeting is Luc Desjardins, President and Chief Executive Officer; Beth Summers, Executive Vice President and Chief Financial Officer; as well as Darren Hribar, Senior Vice President and Chief Legal Officer of Superior Plus, who will act as secretary of the meeting. The moderator of the meeting is Rob Dorran, Vice President, Investor Relations and Treasurer. In the event of a technical difficulty where I am unable to chair the meeting, Beth Summers is ready to step in and chair the meeting. The Board of Superior Plus is composed of 10 members with extensive business and Board experience. It is responsible for overseeing the management and overall direction of the operations of Superior Plus. Of the 10 board members, Luc Desjardins is the only Director who is also a member of management and therefore, not considered independent under regulatory rules. You will find information and disclosure on our existing corporate governance processes in the information circular. Your Board is committed to ensuring that Superior Plus continues to carry out high standards of corporate governance. The Directors of Superior, each of whom is standing for election at this meeting, are as follows: Catherine Best; Richard Bradeen; Eugene Bissell; Luc Desjardins, President and CEO of Superior; Randall Findlay; Patrick Gottschalk; Douglas Harrison; Mary Jordan; Angelo Rufino; and David Smith. The scrutineer for the meeting today is Kyle Gould of Computershare Trust Company of Canada. Last year, we held our first virtual AGM in response to the COVID-19 pandemic as governments and businesses worldwide enacted emergency measures and restrictions to combat the spread of COVID-19. 2020 was an extremely challenging year with the COVID-19 pandemic. As our businesses were deemed critical and essential in the U.S. and Canada, we adjusted our operating procedures for our frontline staff, increased cleaning and disinfection practices, implemented physical distancing measures and provided PPE to frontline employees and remote work arrangements for our office staff to ensure Superior's business continued to operate safely and reduce the risk of exposure and spread of COVID-19. I would also like to thank all of our employees who continue to work through the current situation, ensuring our customers' needs are met to the best of our ability. Immediately following the formal part of our meeting, Luc will make a presentation on our first quarter performance and updated 2021 outlook. Note that the presentation contains forward-looking statements and the use of non-GAAP measures. Turning to Slide 1. I would like to take a moment to comment on the voting procedures to be used at today's meeting. You should now see the agenda on your screen. At top of the agenda page is a legend showing 4 different icons you may click on the screen to access different parts of the platform. For example, to ask a question at any time, click the comment bubble icon. To view the PowerPoint slides for the second half of the presentation, click the icon shaped like a broadcasting tower. If your screen shows only the PowerPoint slides or the questions page, and you wish to return to the agenda, click the eye icon. The voting icon will only be displayed once the polls are open. Most shareholders or duly appointed proxy holders would have voted in advance of the meeting using the 15-digit control number provided to them by Computershare. If you had voted in advance of the meeting or sent in your proxy and do not want to change your vote, no further action is required. Once voting has opened, the polling icon will appear in the navigation bar, and after you vote, a message confirming that your vote has been received will appear. The polls will remain open for all matters being voted on until the last item of formal business has concluded. After each motion, registered shareholders and proxy holders may ask a question related to that specific motion. Please note we won't be addressing any general questions related to the business, financial results or outlook until the formal portion of the meeting is complete. We will do our best to respond to all your questions to all the motions during the meeting. Any questions not answered during the formal part of the meeting will be answered during the Q&A session of the management presentation if time permits. [Operator Instructions] Mr. Dorran will read your questions to the meeting, and the appropriate person will address it. If we receive a number of questions on the same topic, we will group the questions together and provide a comprehensive response. The online polls are now open. As noted, today's meeting is being held entirely by means of electronic communication facilities in accordance with our bylaws and applicable laws. Superior Plus used the notice and access process for provision of its information circular and other meeting materials to shareholders for this meeting. I have received an affidavit from an official of Computershare that proper notice of the meeting has been given and that notice and formal proxy were mailed on March 31, 2021, to all shareholders of record as of March 26, 2021. The 2020 annual report, which includes the audited financial statements for the year ended December 31, 2020, was also mailed to shareholders who elected to receive it. I direct that the affidavit, together with a copy of the documents mailed to shareholders, be annexed to the minutes of this meeting. I'm advised by the scrutineer that there is a quorum present. I declare that this meeting is properly convened and regularly constituted for the transaction of business. Only a registered shareholder or a person appointed as a proxy holder of such a shareholder is entitled to make or second motions or to vote at this meeting. In order to assure that the meeting covers the required business in an efficient manner, we have prearranged that Darren Hribar, who is a duly appointed proxy holder to move the motions of business. I will now proceed with the formal business of this meeting. I am now tabling the 2020 annual report, which includes the consolidated financial statements and the auditor's report thereon. The annual report was duly mailed to shareholders that had requested to receive it. Turning to Slide 3. The number of directors to be elected at this meeting has been fixed at 10. It is now in order to proceed with the election of 10 directors of Superior Plus Corp. The information circular lists the nominees for election for the ensuing year. May I now have nominations for the 10 directors to be elected?

I nominate the following persons for election as directors of Superior Plus Corp. to hold office until the next annual meeting or until their successors are elected or appointed: Catherine M. Best, Eugene V.N. Bissell, Richard C. Bradeen, Luc Desjardins, Randall J. Findlay, Patrick E. Gottschalk, Douglas J. Harrison, Mary B. Jordan, Angelo R. Rufino and David P. Smith.

Under the bylaws of the corporation, advanced notice is required for additional nominations to the Board. There were no other nominations received within the requirements of the advanced notice bylaw, and therefore, I declare the nominations closed. The voting for directors is by individual Director, not by way of a slate -- not by way of slate vote and will be conducted by ballot. Nonetheless, since the number of nominees does not exceed the number of directors to be elected at this meeting, each of the nominees will be elected as directors. May I have a motion to elect the nominees as directors of Superior Plus Corp. I hereby ask Darren Hribar to move the motion.

I move that the 10 persons who have been nominated be elected as directors of Superior Plus Corp. to hold office until the next annual meeting or until their successors are elected or appointed.

Thank you, Darren. Rob, have any questions come in?

No, there are no questions related to this motion that have come in.

Voting is now open. If you have already voted or appointed a proxy holder, no further action is required unless you would like to change your vote. If you are participating in the meeting through the virtual platform, please record your vote. [Voting]

Based on the preliminary voting results for this matter, it is expected that the resolution will be carried. We will continue with the remainder of the business of the meeting while the scrutineer tabulates the results of the voting. Turning to Slide 4. Our next item is the reappointment of Ernst & Young LLP as the auditor of Superior Plus Corp. I hereby ask Darren Hribar to move the motion.

I move that Ernst & Young LLP be reappointed auditor of Superior Plus Corp. to hold office until the next annual meeting or until their successors are appointed at such remuneration as may be fixed by the directors of Superior Plus Corp.

Rob, have any questions come in?

No, there are no questions related to this motion that have come in.

Voting is now open. If you've already voted or appointed a proxy holder, no further action is required unless you would like to change your vote. If you are participating in the meeting through the virtual platform, please record your vote. [Voting]

Based on the preliminary voting results for this matter, it is expected that the resolution will be carried. We will continue with the remainder of the business of the meeting while the scrutineer tabulates the results of the voting. Turning to Slide 5. Our next item is to approve the resolution set forth in the information circular approving the renewal of the shareholder rights plan. No amendments are being proposed in connection with the renewal of the rights plan. A summary of the principal terms of the rights plan is set forth in Appendix A of the information circular. Your directors believe that it is in the best interest of Superior Plus Corp. and its shareholders to continue the rights plan for another 3 years. May I have a motion to move the resolution approving the renewal of the shareholder rights plan. I hereby ask Darren Hribar to move the motion.

I move that the form of resolution set forth in the information circular respecting the renewal of the shareholder rights plan be approved.

Rob, have any questions come in?

No, there are no questions related to this motion that have come in.

Voting is now open. If you have already voted or appointed a proxy holder, no further action is required unless you would like to change your vote. If you are participating in the meeting through the virtual platform, please record your vote. [Voting]

Based on the preliminary voting results for this matter, it is expected that the resolution will be carried. We will continue with the remainder of the business of the meeting while the scrutineer tabulates the results of the voting. As part of Superior's commitment to good corporate governance, the Board has sought a nonbinding advisory vote to accept Superior's pay-for-performance approach on executive compensation, as more particularly described in the information circular. I hereby ask Darren to move the motion.

I move that the form of resolution set forth in the information circular respecting the nonbinding advisory vote regarding Superior's approach to executive compensation be approved.

Rob, have any questions come in?

No, there are no questions related to this motion that have come in.

Voting is now open. If you have already voted or appointed a proxy holder, no further action is required, unless you would like to change your vote. If you are participating in the meeting through the virtual platform, please record your vote. [Voting]

Ladies and gentlemen, I received the preliminary scrutineer's report on the voting results. I have been advised by the scrutineers that based upon the proxies deposited for the meeting and total votes received in advance of the votes entered through the virtual platform, each of the motions and resolutions for all matters to be voted on at this meeting have been carried. I declare that each of the resolution is carried and direct the results of the poll and the votes entered through the virtual platform for all matters to be voted upon at the meeting be included with the minutes of this meeting. We will also press release the voting results as required by applicable securities law. I direct that the final scrutineers' report on the votes be filed with the minutes of this meeting. That concludes the formal part of the meeting. Is there any other business to come before the meeting? If not, I will entertain a motion to conclude the meeting.

I move that the meeting be concluded.

Ladies and gentlemen, I declare the meeting concluded. We will now move to a short presentation by Luc Desjardins, President and CEO of Superior, and he can address any questions we didn't respond to in the formal part of the meeting. Thank you.

Well, thank you, David, and good afternoon, everyone. Thanks for joining us for our annual meeting. I hope everyone is staying safe and healthy in this truly unprecedented time. I would like to start off by saying thank you to all of our employees, those working remotely and those leaving home each day to deliver propane, provide service work or keep our branch and facility operating during this pandemic. I'm extremely proud of the way Superior team has responded quickly to adapt and continue to provide our products and services to our customers. During this presentation, I'll take you through our response to COVID-19, how our operations are expected to continue and meet customer demand through this time and our outlook also for 2021. Beth would also join me on the call to discuss our financial performance, the strength of our balance sheet and our guidance for 2021. At the end, I'll be able to respond to any questions you have submitted prior to or during this call by e-mail to our Investor Relations team. I would like to remind you that some of the statements Beth and I make are forward-looking in nature, and throughout this presentation, we will be referencing certain non-GAAP measures. I ask that you review the material on Slides 22 and 23 for more information on forward-looking statements and non-GAAP measures. Turning to Slide 9. At Superior, the safety of our employees and other stakeholders and their families is our top priority. In 2020, we quickly adapted our operating procedure for the health and safety of our employees, our customers and our local communities, first and foremost. The distribution of propane and other fuel and related services are considered essential/critical services, product and infrastructure in all the states, provinces and territories by which we operate. As the COVID-19 situation developed in the early part of 2020, we responded quickly as new information became available. In March, we put a ban on nonessential travel and moved to virtual meetings and remote work where possible. We have kept some of our office space opened for employees who are unable to work from home, but we have provided strict guideline to adhere to social distancing and local health authority guideline. We follow those. We adjusted the operating procedure for drivers and service technician to avoid face-to-face contact with our customers and other employees. These adjustments to our operating procedures have been in place for the past 14 months and will continue until social distancing and other health measures are lifted by the government. Turning to Slide #10. I'd like to take a moment to discuss some of the recent developments and highlights from 2021. In the first quarter, we acquired 3 smaller propane distributors in Massachusetts, Ontario and Quebec. All 3 of these acquisitions were operating in our existing footprint so we expect the synergy opportunities from these acquisitions to be in line with our historical experience. On April 9, we completed the sale of our Specialty Chemicals business, completing our transition to a pure-play energy distribution company. We have used the proceeds from the sale of ERCO to pay down debt, and we expect to use a portion of the proceeds to acquire Freeman Gas. Another important event was the preferred share investment from Brookfield Asset Management, which include a new Board member for Superior from Brookfield. On April 19, we released our inaugural sustainability report that outlines our approach to ESG practices, including health and safety, diversity, environment and giving back to the community where we operate. ESG is becoming an increasingly important topic for shareholders and other stakeholders, and we want to ensure we are addressing those concerns and highlighting the great work we are doing and what we plan to do in the future to ensure Superior is a great corporate citizen. On April 22, we announced we had entered into an agreement to acquire Freeman Gas, an independent propane distributor in the Southeast U.S.A. Freeman is also in our operating footprint so we expect to generate significant synergy from this acquisition. Turning now to Slide #11. We have shown this slide before, which demonstrates our growth and resiliency of the Energy Distribution business over the past 2 years. Following the acquisition of NGL Retail East business in 2018, we significantly increased our operation in the Eastern U.S. and our EBITDA has also grown. Our EBITDA was relatively flat in 2020 even though we were negatively impacted by COVID-19, warmer weather, the wholesale propane market fundamentals. Quarter 1 2021 weather in the Eastern U.S. was colder than the prior year and closer to the average weather. As public health measures are lifted following vaccination effort, in the second half of 2021, we expect some modest recovery of our commercial volume, especially in Canada. We have experienced a decrease in our commercial volume due to reduced demand from motor fuel, commercial and oilfield volumes. In motor fuels, we have seen a decrease in demand for fuel for taxi fleet, school bus and especially forklifts. Our commercial customers in the hospitality sector and [ remote work can't ] have also reduced volume due to the restriction on operating capacity. The lower oil price in 2020 and reduced spending by producers have also had an impact on our business. However, many of our customers have been deemed essential and continue to operate. We have highlighted our primary focus area for 2021. As I mentioned earlier, the health and safety of our employees, customers and other stakeholders is our top priority. So we will continue to operate in a safe manner, following all guidelines provided by local and federal authorities. We expect to emerge from COVID-19 pandemic as a stronger company, ready to capitalize on the many opportunities we have to grow. We have a strong free cash flow profile and significant liquidity and capacity on our credit facility, which we plan to utilize to grow through acquisition and organically. In both of our propane distribution businesses, we are focused on safety and continuous improvement. In the U.S., there are significant acquisition opportunities in our current market and adjacent market. In Canada, we do see some acquisition opportunities in Central and Eastern Canada. We will continue to acquire companies at attractive valuation and increase our return on those acquisitions through our best-in-class integration and realization of synergies. Our approach will, however, be disciplined, and we're not afraid to walk away from acquisition that does not meet our return hurdle. We will continue to invest in our digital tools and improve on our service offering to our customers. Through our modern sales and marketing approach, we will promote our service offering and win new customers to grow organically, Canada and in the U.S. We have made improvements to the operating platform in Canada and in the U.S. in response to COVID-19, and we are well positioned to grow our volume as we emerge from the pandemic. I'll now turn the call over to Beth to walk through some of our financial and credit information.

Thank you, Luc, and good afternoon, everyone. Thanks for joining us in this virtual format. Turning now to Slide 14. I'd like to take a look back to highlight our performance since the last AGM. Our 2021 first quarter results were 14% higher than the prior year quarter primarily due to the contribution from acquisitions we completed in the back half of 2020 and early 2021 as well as colder weather in the U.S. The increase in EBITDA was partially offset by lower margins in Canada related to weaker wholesale propane fundamentals and lower sales volumes related to the impact from COVID-19 and modestly warmer weather in Canada. Fourth quarter and full year results for 2020 were modestly higher than the prior year as the impact from COVID-19 on customer demand and warmer weather was offset by contribution from acquisitions and higher margins. We also made good progress in our propane acquisition strategy, completing 5 acquisitions in 2020 for total consideration of $280 million. We also completed 3 acquisitions in January and February for total consideration of $45 million, adding to our retail propane distribution footprint in the Northeast U.S., Ontario and Quebec. Turning to Slide 15. Our 2021 adjusted EBITDA guidance range is $370 million to $410 million, with a midpoint of $390 million, which is modestly higher than our adjusted EBITDA of $379 million in 2020. The current guidance range does not include the expected results of Freeman Gas, and we will reassess our guidance once the acquisition closes. Our expected capital expenditures for the year are $120 million to $140 million, which is higher than 2020 due to our prudent delay in capital projects in 2020 due to the uncertainty related to COVID-19. We have a long-term debt to adjusted EBITDA target range of 3 to 3.5x, and we were below that targeted range at March 31, 2021, pro forma the impact of the sale of our Specialty Chemicals business. We anticipate returning to the range with the closing of the Freeman Gas acquisition. Turning to Slide 16. Through the recent high-yield issuances and extension of our credit facility, we further reduced our debt costs while extending our maturities. We're in a good position from a maturity profile perspective as we do not have any significant upcoming maturities until 2026. We're committed to our BB and Ba2 credit rating and our long-term debt to EBITDA target of 3x t 3.5x, which is in line with this rating. Our target payout ratio is 40% to 60%, and we expect to be at the high end of that range in 2021. When we evaluate our dividend policy, we look at the payout ratio and leverage as well as the current yield compared to the share price. We're comfortable with the dividend at the current level of $0.72 per share as we pursue our growth through acquisition strategy. We can further increase our credit facility by $300 million through the accordion feature. However, we don't anticipate a need to access that liquidity in the near term. We're entering our seasonally slower period in the Energy Distribution business when our working capital requirements and debt levels are at their lowest, so we expect the capacity on the credit facility will remain at the same level until heating season. Turning to Slide 17. Our business generates significant free cash flow, which we can use for growth and other nonrecurring CapEx, to repay debt or make acquisitions. We expect to have $200 million of cash available following the closing of the $500 million 4.25% note financing. We also have the full $750 million in capacity available through our bank facility and the accordion. So we're in a good position from a balance sheet perspective to weather the remaining headwinds of COVID-19 as well as pursue acquisitions. I'll now turn the call back over to Luc to conclude.

Thank you, Beth. I'd like to finish on Slide 19. You have seen this slide before, and it summarizes what we take as important at Superior. We have a great management team as evidenced by our ability to quickly react and adjust our business in response to COVID-19. We have a strong balance sheet, and I want to thank Beth and her team for the effort to position us well for the years to come with lower cost of interest on all our debt. Our commitment to the safety of our employees and other stakeholders is also so important to our success in our organization. We're in a good position to emerge from COVID-19 pandemic stronger, and we will look to capitalize on the numerous growth opportunity in front of us. And finally, we look forward to seeing you all at our Virtual Investor Day on May 25, when we will be unveiling our next strategic plan, the Superior Way Forward. We will give you a good insight into our next 5-year plan and how we win in the marketplace. So with that, I would like to address any questions that came in ahead of the meeting or during the meeting.

Luc, it looks like there's no further questions.

Okay. So as there is no further question, I would like to say thank you for attending our annual meeting, and please stay safe and healthy. And looking forward to presenting to you all on May 25. Thank you.

This does conclude this meeting. You may now disconnect.