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

Thank you for standing by, and welcome to the Superior Plus 2021 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host, the VP of Capital Markets, Rob Dorran. Please go ahead.

Thank you, Latif. Good morning, everyone, and welcome to Superior Plus' conference call and webcast to review our 2021 annual and fourth quarter results. Our speakers on the call today will be Luc Desjardins, President and CEO; and Beth Summers, Executive VP and CFO. Darren Hribar, Senior VP and Chief Legal Officer, is also joining today's call. Today's call is being webcast, and we encourage listeners to follow along with the supporting presentation, which is also available on our website. For this morning's call, Luc and Beth will begin with their prepared remarks, and then we will open up the call for questions. Before I turn the call to Luc, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Superior's current expectations, estimates, judgments, projections and risks. Further, some of the information provided refers to non-GAAP measures. Please refer to Superior's annual MD&A posted on SEDAR and Superior's website yesterday for further details on forward-looking information and non-GAAP measures. I would encourage listeners to review the MD&A as it includes more detail on the financial information for 2021 and the fourth quarter as we won't be going over each financial metric on today's call. This will allow us to move more quickly into the question-and-answer period. I'll now turn the call over to Luc.

Well, thank you, Rob, and Good morning, everyone. Thanks for joining the call. Firstly, I'd like to thank the entire Superior Plus team for delivering a solid year despite the challenges we faced from COVID-19 pandemic and warm weather in December. I'm proud of our team's commitment to safety and reliability as we continue to deliver propane and provide best-in-class service to our customer, US and in Canada. In 2021, our adjusted EBITDA was CAD 398 million, which was within our 2021 adjusted EBITDA guidance range. Our fourth quarter adjusted EBITDA of CAD 142 million was modestly below the prior year. In the fourth quarter, our business was negatively impacted by warm weather, especially in December and our US operating region, December was 15% warmer than December 2020 and 12% warmer than the 5-year average. So we never like when the weather is not on our side and quarter-to-quarter, it's very difficult to have a normal flat line. But the good part of this situation when the -- if you look at quarter 1 this year, we started the year extremely warm weather, as all of you know, has been on our side for the starting of this new year. We're very pleased about that. So it balances out over a period of time. In the fourth quarter, we made 2 additional acquisitions in Michigan and North Carolina. We're making good progress on the Superior Way Forward plan initiatives focused on growth through acquisition, continuous improvement and organic growth. In 2021, we completed 7 acquisitions for approximately CAD 325 million. Our acquisition of Kamps Propane, which is expected to close early in the second quarter for a total consideration of approximately CAD 300 million will have a good platform to our California Western US footprint, we're well over 30% of our CAD 1.9 billion target we communicated as part of Superior Way Forward to reach that amount by 2026. We also have a robust pipeline of acquisition and expect acquisition in the range of CAD 200 million to CAD 300 million in 2022. Our 2022 adjusted EBITDA guidance does not include any contribution from additional acquisitions, except Kamps, assuming a close in early quarter 2, which doesn't reflect the quarter 1, as you all know, for Kamps, it's CAD 17 million to CAD 20 million of estimated adjusted EBITDA historically generated in the first quarter. So we won't have that in the result for 2022, it will be in 2023. The first quarter typically generates the highest EBITDA, usually between 45% to 60% of the annual EBITDA depending on business and geographic region. In January, we also announced a collaboration with Charbone Corporation to deliver green hydrogen to commercial and industrial customers in Quebec. This is an exciting opportunity for Superior and align with our strategy to be one of the leading distributor of mobile, low-carbon energy in North America. We're working on other opportunities in the renewable and low-carbon space, and I look forward to sharing details of those opportunities as they unfold in 2022, 2023. Now I'll turn the call over to Beth to discuss financial results and our 2022 guidance. Beth, over to you.

Thank you, Luc, and Good morning, everyone. Looking at the financial results for the fourth quarter and full year 2021, Superior's fourth quarter adjusted EBITDA of CAD 142.2 million was CAD 1.9 million or 1% lower than the prior year quarter. This was primarily due to lower EBITDA from operations in Canadian Propane, partially offset by decreased corporate costs and a decrease in the realized gains on foreign currency hedging contracts. The full year 2021 adjusted EBITDA was CAD 398.4 million, which was CAD 19 million higher than 2020. This was primarily due to an increase in EBITDA from operations and realized gains on foreign currency hedging contracts, partially offset by increased corporate costs. The fourth quarter net earnings from continuing operations was CAD 13.8 million, a decrease of CAD 74.1 million compared to the prior year quarter. The primary driver for lower net earnings was the increase in selling, distribution and administrative costs and a loss on derivatives compared to a gain in the prior year quarter, partially offset by the increase in gross profit and decrease in finance expense. Full year net earnings from continuing operations of CAD 17.2 million decreased by CAD 45.6 million compared to the prior year, primarily due to higher SG&A costs and higher finance expense and, to a lesser extent, lower gross profit, partially offset by higher gains on derivatives and lower income tax expense. Fourth quarter adjusted operating cash flows before transaction and other costs per share was CAD 0.64 per share. This is a decrease of CAD 0.01 compared to the prior year quarter due to lower recovery on current income taxes, lower adjusted EBITDA and higher weighted average shares outstanding, partially offset by lower interest expense. AOCF before transaction and other costs per share for 2021 was CAD 1.56 per share, CAD 0.02 higher than the prior year due to an increase in adjusted EBITDA and a decrease in interest expense. This was partially offset by current income tax expense in 2021 compared to a recovery in 2020 and the increase in weighted average shares outstanding. From a debt and leverage perspective, total net debt to adjusted EBITDA as of December 31, 2021, was 3.9x, which is 0.4x higher than the leverage as of December 31, 2020. The increase from December 31, 2020, was primarily due to lower adjusted EBITDA, partially offset by lower debt levels, and total net debt was lower as proceeds from the sale of Specialty Chemicals were used to repay debt and a decrease in lease liabilities related to the sale of Specialty Chemicals, and this was partially offset by the impact of acquisitions completed in 2021 as well as the refinancing of senior unsecured notes. EBITDA is lower due to the impact from the sale of Specialty Chemicals, partially offset by the contribution from acquisitions completed in 2021. Turning now to the individual business results. US Propane adjusted EBITDA for the fourth quarter was CAD 79.9 million, a decrease of CAD 0.5 million from the prior year quarter. This was primarily due to the impact of warm weather and the translation of US-denominated adjusted EBITDA. Average weather across markets where US Propane market -- where US Propane operates for the fourth quarter, as measured by degree days, was 7% warmer than the prior year quarter and 9% warmer than the 5-year average. Warmer weather in December was particularly impactful as average weather was 15% warmer than December 2020 and 12% warmer than the 5-year average. Warmer weather was a primary driver of lower-than-anticipated volumes and resulted in higher proportionate operating costs. This was partially offset by higher adjusted gross profit. Residential and wholesale sales volumes were consistent with the prior year quarter, primarily due to acquisitions, offset by the impact from the warmer weather. Commercial sales volumes were 10% higher compared to the prior year quarter, primarily due to incremental volumes from acquisitions and the easing of COVID-19 restrictions. Average margins were 3% higher than the prior year quarter, primarily due to our continued focus on growth of high-margin propane customers, partially offset by the impact of the stronger Canadian dollar on the translation of US-denominated gross profit. Operating costs increased by 13% compared to the prior year quarter due to acquisitions, partially offset by the impact of the stronger Canadian dollar on US-denominated expenses. US Propane adjusted EBITDA in 2021 was CAD 226.2 million, 9% higher than 2020, primarily due to increased adjusted gross profit, partially offset by increased operating costs. Adjusted gross profit increased primarily due to incremental sales volumes from acquisitions completed in both 2020 and 2021, partially offset by warmer weather in the fourth quarter. Operating costs increased due to the impact of acquisitions, partially offset by the impact of the stronger Canadian dollar on US-denominated operating costs and cost savings initiatives. US Propane adjusted EBITDA is anticipated to be higher than 2021, primarily due to the incremental cost of acquisitions completed in 2021, the expected contribution from the Kamps acquisition and realized synergies from acquisitions completed in the past 24 months. This increase is expected to be partially offset by the impact of the stronger Canadian dollar on US-denominated EBITDA and the impact of inflationary pressures on operating costs, including labor and fuel costs. Average weather in areas where we operate, as measured by degree days, is anticipated to be consistent with the 5-year average. Canadian Propane EBITDA from operations for the fourth quarter was CAD 63.2 million, a decrease of CAD 2.4 million compared to the prior year quarter as higher sales volumes and higher average margins were offset by higher operating costs. Residential sales volumes were consistent with the prior year quarter as the impact of acquisitions completed during the first quarter was offset by warmer weather in Eastern Canada. Fridge weather across Canada for the fourth quarter, as measured by degree days, was 2% colder than the prior year quarter and 3% warmer than the 5-year average. Average weather in Eastern Canada was 3% warmer than the prior year quarter and 11% warmer than the 5-year average. Average weather in Western Canada was 5% colder than the prior year quarter and 3% colder than the 5-year average. Commercial sales volumes were 3% higher than the prior year quarter due to colder weather in Western Canada and incremental volumes from acquisitions completed earlier in 2021. Wholesale propane volumes were 9% higher compared to the prior year quarter due to increased demand in the California market related to the easing of COVID-19 restrictions and to a lesser extent, sales and marketing efforts to increase third-party spot price wholesale propane sales. Average margins were modestly higher than the prior year quarter due to incremental carbon offset credit sales and customer mix. Operating costs increased by 23% compared to the prior year quarter due to the impact from the CEWS benefit or the CEWS benefit in the prior year quarter as there was no benefit in the fourth quarter of 2021. Canadian Propane adjusted EBITDA in 2021 was CAD 183.7 million, 6% lower than 2020, primarily due to higher operating costs and to a lesser extent, modestly lower adjusted gross profit. Operating costs were 5% higher than the prior year as less CEWS benefit was received in 2021 and incentive plan costs and volume-related costs increased. Adjusted gross profit decreased CAD 0.9 million, primarily due to lower average margins, partially offset by higher volumes and modestly higher other services gross profit. Canadian Propane adjusted EBITDA in 2022 is anticipated to be modestly lower than 2021. As the period is no longer eligible for the CEWS benefit and operating costs are expected to increase due to inflation and improved commercial volume. These decreases are expected to be partially offset by the contribution from the wholesale propane business included in the Kamps acquisition, Kiva Energy Inc. portion. Stronger wholesale propane market fundamentals and higher commercial volumes as COVID-19 public health measures are relaxed. Average weather, as measured by degree days, is expected to be consistent with the 5-year average. Lastly, the corporate results, capital expenditures and adjusted EBITDA guidance and leverage. So corporate costs in the fourth quarter were CAD 1.2 million lower than the prior year quarter due to lower LTIP expense related to the share price performance in the fourth quarter. The corporate costs for 2021 were CAD 24.1 million, an increase of CAD 3.6 million primarily due to higher LTIP costs related to share price performance earlier in the year. Interest expense in the fourth quarter was CAD 17.7 million, a decrease of CAD 4.9 million compared to the prior year quarter due to lower average debt and lower average interest rates. Debt was lower primarily due to the impact of the proceeds from the Specialty Chemicals sales, which was used to repay debt, partially offset by acquisitions completed in 2021. Lease liabilities were also lower related to the loss of leases related to the Specialty Chemicals business. Full year interest expense was CAD 76.1 million, a decrease of CAD 15.7 million related to lower average debt and average interest rate. Average debt was lower related to the sale of Specialty Chemicals and interest rates were lower related to the refinancing of the high-yield notes completed in 2021. Capital expenditures for the fourth quarter were CAD 58.2 million compared to CAD 21.4 million in the prior year quarter due to higher nonrecurring capital expenditures, maintenance CapEx and investment in leases. Capital expenditures in 2021 were CAD 130.3 million compared to CAD 105 million in 2020. Capital expenditures increased in 2021 due to the curtailing of capital expenditures in 2020 then to preserve capital in response to the COVID-19 pandemic. Superior expects capital spending in 2022 will be in the range of CAD 120 million to CAD 140 million. We're introducing our 2022 adjusted EBITDA guidance range of CAD 410 million to CAD 450 million, which implies a midpoint of CAD 430 million. Based on the midpoint of our 2022 guidance, this represents an 8% increase compared to the 2021 full year results when also adjusted for the CEWS benefit of approximately CAD 23 million in 2021, this represents a 15% increase year-over-year. The increase is expected due to the contribution from acquisitions completed in 2021 and assumes the acquisition of Kamps Propane and the associated companies in the second quarter of 2022. Historically, Kamps generates approximately CAD 17 million to CAD 20 million in adjusted EBITDA in the first quarter. The increase is expected to be partially offset by lower adjusted EBITDA for the Canadian propane business related to the loss of the CEWS benefit in 2022, while the commercial business is not expected to improve until the second half of the year. The adjusted EBITDA guidance does not include any acquisitions other than Kamps. We do expect to execute on acquisitions in the range of CAD 200 million to CAD 300 million in 2022, which is not included in our 2022 adjusted EBITDA guidance. The low end of the range accounts for warmer than normal weather and delays in commercial demand recovery, the high end of the range accounts for colder-than-normal weather, stronger wholesale propane market fundamentals and increased drilling activity in Western Canada. Superior's leverage ratio for the trailing 12 months ended December 31, 2021, was 3.9x, which is at the higher end of Superior's updated target range of 3.5 to 4x. As we announced in our fourth quarter earnings release, we're updating our targeted leverage ratio from a target range of 3 to 3.5x to a target range of 3.5 to 4x, while executing our accelerated acquisition strategy. So with that, I'd now like to turn the call over for Q&A.

[Operator Instructions] Our first question comes from the line of David Newman of Desjardins.

I just want to unpackage the guidance a little bit. So the way I look at it, you did 398 last year, you add in probably from completed acquisitions, another 30 to 35 share or 430, 435 to start, including Kamps for post Q1. So you're 430, 435 understand the Qs is a bit of a headwind of CAD 23 million. So that takes you back down. But I'm just wondering, is this -- the guidance looks extremely conservative. And when you start factoring things like synergies from the acquisitions, the volume benefit even from the assumption of a 5-year weather average when last year was much warmer. So obviously, a volume kick there and the economy reopening with the commercial and wholesale. So maybe just kind of -- maybe you can walk through a little bit better because just trying to understand because the market is obviously a little bit spooked, I guess, by the lower number.

Yes, sure. And maybe I'll kick it off and maybe suggest a wait to triangulate. And then, I mean, obviously, Luc jump in. So David, from a year-over-year perspective, so as you look at 2022, I think a good way to look at it is, say, okay, so the midpoint is CAD 430 million. To compare that to where 2021 is, if you look at the CAD 398 million you remove the wage subsidy impact. So that would be CAD 23 million. We'd be at roughly CAD 375 million. So moving then from the CAD 375 million to the CAD 430 million, the growth year-over-year is roughly 15%. And so then if you want to look at it and start from there of the 15%, 8% to 10% would reflect acquisitions that were closed. And recall, I mean, Kamps isn't factored in until Q2. And then roughly 3% of that then would be your COVID recovery that we're seeing, which is lower than we had expected, so you don't have a like-for-like replacement in the Canadian propane business and also some organic growth in there, so that's roughly 3% and then 2% would be weather normalization.

Sorry, in the last 3 would be the weather normalization. Okay. Got it. Okay.

Yes, 2%. Yes, 8 to 10, 3 and 2 for weather normalization.

So what haven't you factored into the guidance? It doesn't seem like you've factored in a lot of the commercial industrial wholesale recovery or what has -- where are you being uber conservative here?

Yes. So maybe I'll take that one. So when we sit internally and look at our business, we really see the business being as solid as ever. I think we were -- I think what this year happened to us, it was more of a timing issue and timing wasn't our frame. So you have the CEW that goes away, but the commercial business, we don't see it coming back until later in 2022. So how much you put back is a guest game, and we've done our work to think maybe just quarter 4. Then you have this synergy acquisition. We've done some, but Kamps is the big one and did come in, in January, you have CAD 17 million to CAD 20 million in quarter 1, not happening. No, we didn't write the check, and we don't know, nobody has heard, but it's delayed. It's delayed. So it will be April to then you'll have the full year, April to April 2023. So I think the timing issue, the weather 15% warmer. So when we forecast, to your point about how conservative we are, we do average forecast. Now quarter 1 is much better than average probably, but we didn't forecast -- well, we forecast...

Comparables in 4Q too, right, Luc?

Yes. So I think we got tough, I think, in the timing zone. It has nothing to do with the margin, the growth, internal growth, nothing to do with potential acquisitions that we're working on and proving them by 25%. Nothing has changed from the machine marching on. What has changed is the timing issue COVID disappear -- grand disappear, business doesn't come back. Well, that's CAD 25 million. It's like how do you replace that in the business? I mean it will come back. That business is not gone. It's a timing issue. When it comes back, all those customers and all those things are our thanks and our customers, and we know it will come back. So you're looking at the puzzle, and you look at a timing issue that's by -- that didn't help us at all. And if you look 12 2023, and we don't want to go there, it's like back to normal timing of plus and minus, the business is performing very well, but you have a timing issue more than one factor like the weather, the synergy and the acquisition delay of the large one and then the QW go away, and we don't know how much is coming back, when we just don't see it in quarter 1 that much.

Yes. And I think what I will also add, David, is with respect to like the COVID recovery from that. I mean, our view is we're still going to be looking at somewhere CAD 10 million to CAD 15 million gap from where it would have been pre-COVID levels in 2022 based on what we've been seeing. And of course, things can change, but that's currently the way we're looking at it.

On EBITDA, clearly, right?

Yes.

Okay. Got it. And then the second question just has to do with the -- and Q2 for raising the leverage range because if I look at utilities out there, 5x net debt to EBITDA and IPPs at 6x, it does make some sense to me given the fact you've gotten rid of the Specialty Chemicals, you have less volatility. But if I look out into the close of 2Q and then you look -- it looks like you're going to have availability of around 270 or something or sub-300 post Kamps and then you want to do CAD 200 million to CAD 300 million in potential deals. It does look like you might exceed the top end of that leverage range. Any thoughts on just on the balance sheet and your aspirational targets for the deals?

Yes. So I mean, David, consistent with what I would have communicated historically, as we look, we're committed to our BB rating. So as we look at acquisitions, it's really dependent on size and timing and when they occur. And as a result of that, I mean, we would look, we would look at where our balance sheet sits at the point in time and then make a call and evaluate the time what makes sense and what's required politically to maximize the value to our shareholders.

Our next question comes from Ben Isaacson of Scotiabank.

I just have one question. You talk about COVID recovery, whether it's in commercial, wholesale, industrial, et cetera. And when I think about your markets and where you're at, for the most part, it seems like there aren't as many restrictions anymore. And so what I'm asking is, can you discuss your confidence in how much volume you think will recover in each of those subsegments and when you think that will happen? I know you did say in the second half, but what's going to change between now and the second half?

Yes. Good question. And I hope I'm close to reality here because there's no crystal ball that can tell us exactly. So for the US business, mainly retail, so maybe 5% plus retail. There's only a 15% commercial business that gets affected by COVID. In Canada, we've been growing residential very well, more than 2%, 3%. And then the commercial business in tandem represents 2/3 of our total Canadian business. So that's where the delta is. The big -- we're big -- we're the national one. We have big, big scale for industrial commercial. It's a big advantage. And then we're -- when it comes to the COVID business, I tell you, when you look at all of this segment of the commercial industrial, we can look at the history before COVID and what's happening up to now, and it's down tremendously. So you're -- it's a big delta, and we see a bit of recovery, like we talked, I think, about 3%, but it's nothing compared to the volume that those people were using pre-COVID. So when you think of commercial, and you go across the country, all the warehouse with the lift truck, all of the auto industry represents 10% to 12% of our business, that's cut in half. And then you have commercial, the rest of is, the pizza corner store, then you have big industrial and the oil field is volume-wise, they might get a bit more volume right now, but compared to pre-COVID not at all. And we know that some of that has gone forever. We have at energy for the last 3 years, but some of it is all related to COVID. And then we have a big industrial project in Western Canada to build the service and with propane and also site to thousands amount to get new natural pipeline to the West Coast. That's slowed down more than half. So you're looking at those segment one by one and say, they are gone. They've just gone now. They're going to come back when the market comes back. Canada has not reopened fully or even I don't know what percentages we opened, not much. And it looks like now March, April, there's a strong possibility things starts to go back to normal, somewhat normal. So to David's question, are we conservative thinking quarter 4, and it starts in mid-quarter 3, that cannot predict better than what we see out there from that 70% -- 65% of our business is with industrial commercial. CRW will help us to compensate for that. And then it goes away and then the market not coming back for a while. So you have a lag, a timing lag of that business this year, the place in the business, business lagging by, let's say, 6 to 9 months after the CRW is gone.

Luc, what I can maybe do is just provide a bit of color. So our assumption is that the recovery isn't really kicking in or we won't be back until Q4 on the way we were previously. But to give you a sense, in particular, for Canada because I think the US wasn't impacted as much because of the residential business, sort of some of the volume increases that we are expecting for 2022. So in residential, we are still expecting higher as we grow that business, and that would be somewhere between 9% to 11% growth. Commercial overall, we're anticipating 5% to 7% higher volume, and I could split that a little bit. So an oil field somewhere between 5% to 8% higher, industrial, we're viewing is going to basically be consistent with 2021. For general commercial, higher in that 9% to 12% range again. And then for motor fuels, we do see them modestly higher still growing from 4% to 6%. And then wholesale, we also see being a bit higher from 7% to 8%. So we are seeing increases in the volumes. It's just because it's towards the end of the year. It doesn't replace where we were prior to the headwinds of COVID.

And maybe just a follow-up on that same topic. So it seems like this can really go 1 of 2 ways. Either we continue to get 1 or 2 variants a year. And really, this is the new normal, and we'll just have to accept what the volume is going forward or we really are on the path to recovery, in which case, wherever we are by, let's say, the end of 2022, that should just be what the new normal is. Is that fair to say?

Well, I have a different perspective, which is I think all of you have your own idea how things could unfold. To me, my prediction since January has been when you get to April, May, the whole world is going to say enough is enough, you'll catch it and we have to live with it. So if I'm right, people that didn't get vaccinated will be more -- having more difficulty and get more sick. And the rest of the world has to go back to normal. So I think the -- to think that the path recovery will never come because COVID 4, 5, 6, whatever comes after, I think we're like -- I think the world is going to say, enough is enough, we'll go back to normal and we live with it and you're going to catch a cold because you're vaccinated not so bad. And for everything that's been done, don't get me wrong from my personal point of view, but I think you cannot go on forever, and never like that, then there will be -- some people are going to get sick for years to come because they didn't get vaccinated, but the world has to go back to commercial business and other things go back to normal and we'll have to live with that.

Our next question comes from Nelson Ng of RBC Capital Markets.

My first question just relates to Kamps. I was just wondering, you flagged early Q2 close. What are the remaining approvals required? I know it doesn't really matter in terms of timing after you've missed Q1, given that Q2 and Q3, you're pretty negligible. So I'm just wondering whether it's Q2 or Q3, I know it financially, it doesn't matter, but how confident are you that it will finally close in early Q2?

Yes. Darren Hribar is on the call. He's been on that case every day. So I'll ask him to give you, I guess, further view in that regard.

Yes. Thanks, Luc. Yes. So Nelson, I think that where we are currently, we've both Kamps and Superior complied with the second request, providing information -- extensive information to the FTC. We continue to work with them to answer questions and provide additional information. I think our expectation right now is that we will close in early Q1 -- or sorry, early Q2 or very late Q1. So I think that's still our expectation right now. And it's -- there's obviously some variability, but that's the approval that is outstanding.

Okay. My next question just relates to leverage and funding, and it's probably for Beth. So you flagged the new target leverage of 3.5 to 4x. I think in the past, when the target leverage was 3 to 3.5x, you mentioned that in the short term, you're comfortable going above that range. And then after realizing synergies and things, you had fall back within that range. So with the 3.5 to 4x, does the same hold in terms of you're comfortable going above that 4x ratio in the short term and then fall back within that range after synergies are realized?

Yes. And I think from our perspective, I mean, we moved it to acknowledge the fact that while we're doing accelerated acquisition, certainly, that being said, I mean, I'll always flag it, and I always flag it, which we're was committed to our BB rating. So I think from our perspective, as we look at acquisitions and the timing, we'll look -- we know we want to be within the range. There could be an instance, we're a little bit above the range. But I think we're committed to that BB. And we'll do what makes sense. Every time we look at the acquisition, we'll make a sense on timing and how quickly and how the synergies are rolling in to truly decide what we need to do. And if we get to a situation where the best answer is to potentially look at something like going to the capital markets.

Okay. And then preferred shares part of the picture in terms of something that you would look to consider?

I mean we've done preferred shares in the past. I mean, I'll always say from my perspective, I'll always look to more traditional products where it's possible and where it makes sense, right? It's part of our structure, we're comfortable with them. But I think from our perspective, as we look at the overall balance sheet, the reality is we're comfortable with them there, but we're also comfortable with all of the other pieces of our balance sheet, so.

Nelson, I'll add a few points to your question for everybody, which I think maybe all of you on the call knows, but just to be clear, when we get to the end of December at 3.9, this is going down on its own quarter 1, quarter 2, quarter 3 will go way down because it's the highest touch point of the year. So there's that happening. And then to the point about the leverage between 3.5 to 4, I spent 12 years here every day, and that's just about and this is a great cash flow business from an 80% net cash flow of EBITDA is solid as it get and where margins are solid. So very comfortable to 2.5 to 4 because of the history in the industry we're in.

Okay. And then just one last question on the green hydrogen arrangement with Charbone. Can you just give a bit more color in terms of what you're actually doing and the capital commitment required? So are you essentially buying trucks that could transport hydrogen and kind of doing all the deliveries for a fixed fee or commitment? Or like what's your capital commitment and things like that? Can you just provide some more color there?

Thank you for that question. And I'm actually with them in 2 weeks and it will be for them and other people -- we'll talk about them for a second. They want to build many plants across Canada. And for us, we're very fortunate because, okay, we don't invest in the plant and the capital to build. And for them, they have no way to do the last mile. And the last mile are pretty much customer we all deal with or no because we're a big industrial business. So what happens is there's a perfect match of a corporation here where they will build the plant, make the product, they sell it to us, and we have the customer and we deliver the last mile. We bring it -- with the capital trucks, by the way, we have already, it's the same type of truck of some of our products we deliver. And we make the same kind of margin that we make right now selling protect. So take a bit of not much capital, now do we need a bit extra truck because this business will grow and be developed across the country? The answer is somewhat yes, but very, very light capital, very solid, good margin as we have today. And not just a good win-win by them being to build the product maker and they have no FedEx to bring it to the consumer. And we have -- we're the industrial FedEx will bring it to the last -- to the customer wherever they're located in Canada.

Okay. That makes sense. And that facility hasn't been constructed yet, right? It's expected to generate some hype starting Q3?

Yes, exactly. I think it's somewhere -- I'll know more in 2 weeks as I'm with them, but I believe the plant is finished and done for this summer. The summer 2022 yes.

Those are my questions for now.

Our next question comes from Steve Hansen of Raymond James.

Sort of two-part question. The first part, just curious if the Kamps experience is, in any respect, diminish your ability or your maybe desire probably the better word to do larger acquisitions in the current environment? I think we all understand that there really isn't any large -- any competitive issues. But just given the dance you've had with the FTC through this whole process and the deferrals it's caused, I mean, do you try and go after the small or midsized deals here, at least in the interim? Or are you still confident now have to go after some of the larger ones?

No. Very good questions, Steve. I'll do a part, and I'll offer to Darren to jump in and give more color. So I don't see any issue of buying retail propane company in the East Coast, West Coast and USA. I think this experience has more to do with new people, FTC, new policy, things we have to look at everything and what about the natural gas and Barbosa learning curve. And to the question discussion that was more driven to the wholesale business and not understanding and they wanted to understand the wholesale business who makes a product, who delivers, who can distribute and there's a ton of that. We don't see issues. But there's a very strong belief in our part that the retail is not going to be affected to buy retail and distribution business. And the worst scenario in the West Coast, if we don't buy another wholesale, we don't buy another wholesale because it's complicated, and they're getting their head around what that is. And I think they're realizing it's nothing there and there's tons people that can do that. So net-net, we don't see any slowdown in potential capability to do retail acquisition of propane business. I don't know, Darren, if anything else you'd like to add to that?

Sure, Luc, thanks. No, I think you covered most of it. But I mean the points right there, the regulatory authorities clearly are looking at more transactions in the US, that is the current environment. But that analysis is very fact specific. And in this circumstance, with camps, there's a large wholesale component. And based on what we've seen to date, the questions and the interaction, that seems to be a focus of what they're trying to understand it. It's not the most straightforward. So I think there is some learning going on there. So I agree with you, Luc, I don't think that, that should be viewed as a dampening on our ability to do retail propane acquisitions. Most of the retail businesses that we've looked at in a number of the locations, you've got 15 or more competitors. It's very competitive and fragmented. And so I don't think you'd get the same kind of analysis. So I think this is particular to these facts.

And just as a related question to some degree, is just your desire to take the leverage range up a little bit here to pursue the CAD 200 million to CAD 300 million you described this year. Is there an urgency to go after these deals now as opposed to go a little bit slower and keep the range intact? I'm just trying to understand the balance between those 2 tug of war for instance in some respects? You always want to go faster, but the leverage keeps you test you don't see sort of at a modest pace. And how do you think about that and why the urgency to go faster now?

Yes, I'll start, and Beth will talk on some of those issues. So we certainly have developed a market position to be the lead acquirer because of 17 deals, quality, health and safety, employee communication, we're humming in that regard. Now deals come not to or come to us going to a place and say, you're not for sale, we'll pay more and we want to buy it. We don't do that. We have a game plan. We have communication all the time a lot with midsize and larger group. And the game is one day, you're going to be for sale. This is who we are. This is how we do things, and we go to a situation and have all those meetings. So they get to know us over the last many years. And we don't know when the fund's going to come for sale out a small or big. So it's not us to decide that. But we know we want to be in these calls, and we know when we're buying our backyard of a region like we did with treatment, there's a ton of synergy. We know getting a scale in the platform in California and adding to it, north-south and going north of California, one day, it makes sense and then you add and you just make a more synergy. So we strategically have our location, we want to grow. And we don't want to pay more. We lost the deal, we lose deals all the time because they're going to be trading at a higher level. We just will stop and say not for us. So we're disciplined. We have our value. We have our 25% improvement on deals. We know it before walking in the door day 1. And we're -- with all of that comes the balance of the debt and when and how. So we're having built a position we're marching on. And when we know it enter zone and it makes sense, do we have the synergy of the 25%, okay, let's go do it. And hopefully, there will be -- the timing ideally would be spread out where it works well with the debt scenario, but it's not the way it unfolds and sometimes a boy, that's such a great company. We better get it, but what is sold, it's not coming back. So then I'll pass it to Beth.

Sure. And I think sort of building on where Luc was coming from. The reality is when we look at the deals and where the deals make sense, the deals are available and come to market when they come to market. So as a result of that, we look at it as a business and we say, what makes the most sense long term for the shareholder. So as we look at it and we balance it and we say, if we're going to create long-term accretion for a shareholder and it makes sense, we'll look forward. And as we've talked before, depending on timing and evaluation, et cetera, I mean, as a result of that, there might be things we have to do from a capital perspective. Our view is when the acquisitions and when they make sense, we're going to be opportunistic and do what makes sense to continue to build that value for the shareholder.

Our next question comes from Patrick Kenny of National Bank Financial.

Just circling back on the Kamps acquisition here closing in Q2, I'm just curious why missing out on the circa CAD 20 million of EBITDA doesn't reduce your final purchase price there? And I'm just thinking, is this something that you might look to consider within negotiations going forward, i.e., have the vendor, wholesale or retail, take on more of the risk around regulatory approvals or the timing to close, especially for these relatively larger deals?

Yes. So the valuation we have on Kamps and this synergy makes it very accretive to our shareholders. What you're talking about is we're missing quarter 1, but we didn't write the check for quarter 1. So we're not really missing anything with the exception of you have a better first 12 months, if you start in January. The company valuation to me, and I think the market stays the same, but you probably have your one -- you write a bigger check year 1 and you have the EBITDA only 12 months later, which is not all the same year. So there's a bit of a gap there, not big dollar, but there's a gap. From the rent you write the check and when the return comes, you're not starting the best month going forward. But then for the next 20 years, it all match up that you pay the right value for the EBITDA that's still there going forward plus the synergy. I know if Beth explain it good enough, if you want to take that on?

Luc, just the only thing I think -- it's Darren. I just thought I'd add to that. I think it's a good idea to push that risk on to a vendor, if you could. Certainly, the challenge you have is when you're in a competitive process like this, to try to push regulatory risk on to a vendor, it's going to be difficult when you're competing with other bids. I mean, if you thought you had a leg up, given a number of other things you might consider, but I think that makes it a tough negotiation and a tough sell for a vendor.

And then maybe, Luc, could you provide a bit more color on your strategy here to scale your footprint in the Midwest? I'm just curious if the Hopkins acquisition establishes somewhat of a home base for you in the region? Or are you still looking for that larger scale retailer to really kick off a hub-and-spoke model?

It's a great region. Yes, and we did buy a good sized company. I go back, maybe, Rob, on the call could give us the exact date 3, 4 years, I guess, in Ohio. And we do have a platform, and we've -- we take a Superior way. We centralized a lot of the work, and you don't have a call center and people and every brand, solidly done with that platform. So what we are adding now is in the same neighborhood of those regions. We like the region. We wouldn't go further in the middle of USA at this stage, and we don't know about the future in 5, 10 years. But that's a great region, and we do already have some locations there and a good team, and it's a really great regional manager. So we're building on that as they come along as.

And is part of the strategy there, Luc, to have somewhat of a free option on perhaps extending your new green hydrogen initiative into the Midwest at some point down the road?

That's a tougher question. I'll give you my reality check at this stage. We're going to do extremely well in Canada because we're the big player, we're the scale, we're the brand, we cover the whole country. So when anybody that was to do green energy for the last mile, as we talked earlier about FedEx, we're at -- so when it comes to the states, I don't know today how it could unfold and what region. I do know with Kamps who have an opportunity for wholesaling some renewable propane with that Kamps region, we expect to, in California to have something in that regard, and we'll have the scale to do it in California, what we do in Canada. So looking forward to that and I can say, I think something there will develop over the next year or 2 or 3. The rest of the US, I don't know, we'll have to wait and see. We're pretty new at it. A year plus we've been studying and trying to research and understand the market and where do we belong and how do we become the deep player with the green energy. I can make you a strong commitment in Canada. We're going to be it. We're going to be good. California after Kamps, I think we'll work hard to do something quickly there. And then on and on, we'll develop the strategy, the plan and we'll present it to the market once we know more.

Luc, last one for me, if I could. Beth, maybe just back on your comments around leverage and potentially looking at the capital markets at some point down the road. But maybe you could just speak to what other levers you might have on the liquidity front here just in case the capital markets aren't attractive as you look to execute on this accelerated M&A program? You obviously have a couple of shareholders with deep pockets. So I'm just wondering if there's an understanding there that if you do need additional liquidity to stay on course with the M&A plan that you'll have access to other cash resources outside of the capital markets?

Yes. I mean I can't really speak for what others wouldn't be willing to do as we look going forward. But certainly, we'll always look at things opportunistically. We do have 2, I'm going to say, sort of very supportive investors in Brookfield and NMB. So I think from that perspective, I mean, there's certainly all the discussions that we have comfortable with what we're doing and what we have going forward. I don't want to speak for what they might do if we were looking at something. I think access to liquidity is always something that we would factor in as we looked at the acquisitions going forward. And I think the reality is right now, when you look at the amount of room we have on our credit facility, et cetera, we're comfortable as we move forward. But I mean, it's going to be very specific to timing, size of transactions, et cetera, right? But I think the crux of your question around do we have -- are large investors supportive of us? Yes, based on our discussions, they're supportive.

Our next question comes from Daryl Young of TD Securities.

A few quick questions for me. So first on the guidance range of CAD 410 million to CAD 450 million, apologies if I missed it. Do you quantify what you consider abnormal weather to get you to the CAD 450 million? And then how does that compare to what we've seen so far in January, February because I think we're double digits colder than normal at this point?

Take that, Beth?

Yes, sure. I mean what we would typically do when we're looking at developing the ranges is we would look and we would say, look, over the last 5 to 10 years, what are some of the extremes from a weather perspective. So we'll build the range is looking something that is within the range of what we would have experienced historically. So somewhat you can think about it, it's not exactly linear. Like it's -- you lose more EBITDA as it's warmer than you gain when it's colder just because you have to keep on some incremental costs, et cetera, when it's warmer just to make sure that you've got people to deliver, et cetera. But it's almost -- if you look at it, it's not perfectly linear, but it's -- you do have an increase somewhat proportionate to the change in weather, depending on the months that you're looking at. It's a very long drawn out way to say, we'll use plausible estimates in creating a range of what we've seen in warm weather historically and cold weather historically to get your outside of the range. That being said, it isn't just weather, right? Like we'll build that range on other items as well, right, differentials in the market from a wholesale perspective as well. Are you looking more so for a specific number?

Well, I mean, I guess I'm just trying to keep how much warmer -- or sorry, how much colder are we currently than maybe the range would imply?

Well, I mean, as we talked about, I mean, January was definitely colder and colder in the US. I mean, I think one way to say in order for us to work through and get to that high end, we would need not just a cool Q1, and it would need to be a cold whole Q1. We'd also need a cold Q4.

And then just one other question. In terms of the 5-year guide, based on the amount of capital deployed at this point, I certainly wouldn't be expected the EBITDA to be higher. Commercial volumes are obviously a big impact. But could you just maybe give us a sense of if there's been any changes in the assumptions that would have gone into that 5-year plan and where you feel in terms of when you sort of hit the midpoint of that?

Difficult to say, but what we don't have in the 5-year plan is some additional distribution of green energy that we start to work on. But the -- I don't think there'll be a shortage of deal to get to the numbers. And like we chat earlier with another question, they're choppy. They come in and out and you don't know when and who was sell at what time. We just know them out, and we're in the door, and we're getting the call. So I'm probably missing a few points that are key here. So Darren or Beth can jump in or Rob?

Yes. I think some, Luc, what I would say from the highest perspective, when we look at the Superior Way Forward target of that 2026 EBITDA, I think, initially, we assumed that it would occur in a very even pace through. We knew it would be choking as Luc is saying. I mean I think when it comes to the assumptions we were using for multiples and the ability to achieve synergies, they're all still in line. I mean there's nothing that we would look at now that would change our expectations of what can be delivered. I think when it comes to acquisitions that we've entered into and executed, there's been no surprises. We haven't had any where we dramatically saw different synergies than we expected. Any surprises we've had have always been to the upside. So I don't see anything that would give us any pause or any concern that any of our initial assumptions other than just the choppiness of the timing which new was the potential is any different than what we were thinking about when we were talking about it at Investor Day.

Our next question comes from Joel Jackson of BMO Capital Markets.

Can you help us look back a bit, if you look at whatever 2, 3, 4 years, what has been the ROIC or return on invested capital from the propane acquisitions that you've done? Can you maybe give us a sense of what kind of value creation you have made for shareholders?

Yes, the ROIC, it will differ depending on the transaction, obviously, which makes sense. But typically, it's anywhere from...

So Beth, typically, sorry to interrupt. What have you achieved? Like I know the 25% you talked about. What can you show us you've actually achieved the last 3 or 4 years, not for typical but actual performance?

It probably needs an analysis to go back that far. And we know what we bought and what the return are when we sign and what expectation to that point has been achieved. But to come back to 4 years of if we have an answer of those 4 years already given.

Yes, Luc, and we can certainly take it and talk about it offline for specifics and do a detailed analysis. But fundamentally, the acquisitions that we've done, they have delivered what we expected them to deliver. So in fact, because you're achieving the budgets and the synergies as we set them out initially when we did the investment, what we were expecting would, in theory, be where the actual is. Your question is a little tricky because what occurs when we do an acquisition, the acquisition gets absorbed in the business, right? The synergies occur because it becomes part of the business. So you don't have an isolated and you can't track it on an isolated basis, but we can track where the cost reductions, et cetera, are when it comes to specific cost areas, in particular, in the first year. Once it's fully integrated, then it's just part of the base business. So that's where I was answering it as that's what we would typically expect. And we haven't dramatically had anything that we've seen where acquisitions didn't deliver what we initially had expected them to.

I think it'd be an interesting analysis since you guys are interested. It is your strategy going forward to see where things have happened. And the reason why I say this, I set up my second question, which is a real question and Luc, Superior Plus, as you know, the stock price is stuck in a range of basically CAD 11 to CAD 12 a share for 15 years if you ignore some transient period below that range, and we are above that range, we're there today, CAD 11, CAD 12 a share. So the stock market is not giving you any credit for all the things you've done Superior Way. You sold off businesses. You bought businesses, you've gone to a propane pure play. So what is the market missing if you have achieved the value creation and ROIC on your propane strategy?

It's a very good question. I really have invest a lot in this company, as you know, a lot of our management. We have a good business at such great cash flow and does so well, and we have a dividend of 6%, and it's a tough one because it's not like this business as we're not in utility, but were some utility we own the tank and your cash flow is great and growing every year. We don't like it because we could not the acquisition of Kamps it's like growing CAD 60 million, totally growing at 30%. But what the heck, I wish some of you've heard on the phone can tell me why isn't the stock or the loan, which is to me, not CAD 12 or CAD 13. It makes no sense. Maybe if I could think more optimistically, I could say, maybe once we get to a certain size and the roll up our done 17, I think the proof is there. But maybe the market they're done 25 now and look at this and the return, I can tell you on the deal are great. So you're like what's missing to get the right value for structure a business with such a market position with such a solid margin with very low risk on the -- if not in a very small way, almost nothing on the commodity you're like what the heck, that's a good question. We have a puzzle understanding why then the stock at the right value, which is not CAD 13. Do you have any ideas about that?

I think you could, in your next investor event, I think you could -- to my first question. I think if you could show how your propane transition is happening from a high level, what opportunity you've achieved on your business, where you may be come in above your targets or you become below your target, maybe how that shapes your future acquisition choices, would be helpful.

Yes. There is a presentation, Rob, that we made. I don't know if it was -- if it's on the Internet, but every deal and the average deal and the average return and I'll ask Rob if we have answered already package ready for that.

Yes. Luc, there is a slide on an investor day -- on the pre-synergies and post-synergies multiples, but there's not a specifically return on invested capital calculation. So that is something we can look at.

Okay. I appreciate that, yes. It's all right. And then, Joe, one thing that we know from our size, we have big competitors that are losing market share every year that are public. And when you look at, you compare us to the MLP, I won't give the thing, but you all know them. It's not a good business model, but they're public with their valuation. So I think we get pulled into that valuation. We never had an approach of 100% dividend, not investing in technology, digitalization system, marketing. We don't operate at all, like those 3 businesses that are public. But we'll probably put in those in that bucket. That's one way maybe one touch point to say, why not more value for that stock. That certainly comes to our mind. There might be others, but that's one where we have big, large public competitors that are not -- don't have a good machine of developing the fitter properly, and they lose market share every year and just it's like RD old and come to us. Now you can it to stretch the business. So one time, one day, you don't look good. I think the stretch has happened for them. But we don't operate like that, but we're probably putting that bucket to a degree.

Our next question comes from David Newman of Desjardins.

Yes. Just a quick simple follow-up on just on the margins. You've done some things over the last couple of years, some kind of temporary and some permanent. And we've got a new level of margin in the US on cents per liter 42.2 and 18.5 in Canada. And just looking into 2022, the wholesale market fundamentals look decent. You've had some cost savings. You've ripped out some costs permanently out of the structure and then you've demarketed some of the lower-margin accounts. So maybe just as you're looking into this year, what's your sort of expectation of what could stay in the cents per liter on both sides of the border?

Yes. So I can kick it off. So from a US perspective, what we are anticipating, David, still a range of that CAD 0.38 to CAD 0.44 -- Canadian, it would be CAD 0.38 to CAD 0.40 is typically the range and remember, that's converted to USD 0.30 to USD 0.35, but again converted into Canadian. So you're right, we were at CAD 0.42. For 2022, we're thinking that those average margins will be slightly lower, right? We have a slightly different mix. We've got some growth in commercial volumes as a result of acquisitions, et cetera. So you've got some mix impact, but more importantly, it's an FX impact.

And what order of magnitude, Beth, like for USD 0.30, USD 0.35, what are you thinking in Canadian dollars, like your CAD 0.30 to CAD 0.40, what do you think you're going to be the lower end of the range there, like CAD 0.38 something?

No, no. When we're seeing slightly lower like CAD 0.42, like CAD 0.41 right or somewhere between those. So just modestly lower, slightly lower. In Canada, we are at the CAD 0.18, what we're forecasting for 2022 for Canadian margins again is just slightly lower. And again, that's predominantly going to be driven because as we talked about the volume increases, we're going to have increases in wholesale volume, and we're also going to have increases in those commercial volumes, which you just get that impact from that change in the customer mix.

And what's the potential here? I mean you're doing things like the sensors and things like that, more obviously, retail, but -- and then you're sort of demarketing some of the lower-margin accounts, like what's the potential here? Like where could you be aspirationally on these margins?

Yes, I think there's a dialect I've just talked earlier about the 3 public company that increased margin more than half every year. They lose EBITDA and the one here or a bad year, they'll just increase price and they lose volume. So we want to be in a position where we can increase price to a degree, let's say, a penny a year and we do the real study branch by region, what's the competitive landscape. And we come to a conclusion as to, okay, we can increase the CAD 0.41 to CAD 0.42, CAD 0.43 without losing the customer. So we cut with the sensors, the retail, the communication we have with different specialized people in different commercial segments. We've cut the attrition in half over the years. That's very important. That's important as the growth. And then we grow that commercial Canada right now. We've grown retail a bit more than anticipated in Canada. The machine in the state, there's some growth in the states, but the -- all of the application that gets us an extra margin in the States and better contact in blue with customers by segment in big time retail because of our size of retail and space. We haven't executed all of those tools yet in the state. It's a big year coming in 2022 to get there. They've been busy CAD 30 million became CAD 230 million of EBITDA overnight. So -- but -- and we did put some good talent and marketing salespeople, but we're lagging the Canadian maturity of developing those 2. And that's going to come. So to me, I believe that we could continue to have some good internal growth and increase margin over time, slightly. The big lift, I think, on margin are behind us. Now we're more at the point where we can continue to increase slightly margin over time by adding more glue and more service and easy to do business with and all the tools that we've pretty much installed in Canada, more to come and in the state. So don't see why not.

And if you look at inflation and things like that, Luc, in a low propane, I know the propane prices have rolled over and they're now rising again, but I know there's a little bit of a tailwind that goes with that in 1Q. But just from an inflationary perspective, it's got to be much easier when you got a low propane price and a low rack spread that you can -- that you -- with the retail customers, you can get more through in terms of pricing. And in this environment, maybe you're not getting rack plus, plus or so to speak. But is that -- are we thinking about that right?

Yes. In 2021 and have been a good year to add a lot of margin because what happens is when price on the propane goes up the way it did and then it went down on back half if you said, you have to be very careful of communicating with customers ahead of time to say, this is like natural gas, the oil that when you go to fill up your car, the tank, this is -- we're a pass-through. We'll make a delivery to you, but the world of energy costs have gone up everywhere in every respect and we communicate to customers with e-mail or call centers and all the above. So we want to be very cautious in those times because what happens to people's mind, even though I think in the last year, they know more because when they go with their car to fill the gas or all the cost of energy is more known than in the past, if something like that would happen, you have segment of people that know and some don't. Most people know today. So it's -- but it's fragile. You cannot increase on top of those increase and not expect customer when the summer comes, go away. So we're -- and that's why we have a balancing act to find the right place to price properly. So we don't want to do like the 3 other big companies have done and just increase price, and we'll lose 5% more customer next year and -- but our EBITDA might look better short term. So we're cautious about that. We're debating that regularly as to what's right here. But to think of your original question, can we continue to tweak slowly, but surely over the years, I believe so.

Thank you. At this time, I'd like to turn the call back over to President and CEO, Luc Desjardins, for closing remarks. Sir?

Yes. So thank you, everyone, to participate. I understand and I explained at one stage, we're cutting that damn timing issue, but the business fundamentals, the business operation, margin synergies, nothing has changed. It's just the bad timing. And those customers and those tanks are in Canada are still owned by us, and they'll come back. And the growth in the acquisition are there, and we'll continue to harmony to Joe's point, I guess we know that it's something around to be at CAD 13 or so when we have a machine like that. But usually, with market, I don't get overly disappointed, but not to the point, I'm not getting overly concerned because usually, there's a time down the road where the market catch it and picks it up. I don't know if it's when we get a bit bigger and then more investors from US or the world, but we'll continue to work hard for all of you, and we appreciate your interest in our company.

And this concludes today's conference call. Thank you for participating. You may now disconnect.