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

Hello, and welcome to the Annual Meeting of Shareholders of Superior Plus Corp. 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. Mr. Smith, the floor is yours.

Thank you. Ladies and gentlemen, good afternoon, and welcome to the 2022 Annual Meeting of the Shareholders of Superior Plus Corp. I am 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 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 meeting virtually again this year. Naturally, the virtual nature of this meeting has an impact on the way in which the meeting is conducted, which I will explain shortly. However, our goal is to preserve the right of shareholders and proxyholders to vote on each of the resolutions before the meeting and to the extent possible, provide you with the same opportunities to participate in this virtual-only format as you would have had at an in-person meeting. As with any technology applications, unexpected issues may occur. But Computershare, our service provider for this platform, will help us to resolve any issues that arise. I welcome our registered shareholders and all guests that are joining this meeting today through our virtual Annual General Meeting platform. We are excited to have your participation in our virtual meeting, and thank you for your interest in the affairs of Superior Plus. This meeting is being live webcast as well. There is 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. 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, Capital Markets. The Board of Superior Plus is composed of 9 members with extensive business and board experience. It is responsible for overseeing the management and overall directions of the operations of Superior Plus. Of the 9 Board members, Luc Desjardins is the only director who is also a member of management and, therefore, is 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. I'd like to take a minute now to acknowledge Mr. Randy Findlay, who is retiring from the Board and is not standing for reelection today. Randy has served on the Board of Superior and its predecessor company since 2007. We have gone through many changes in the business over the years, and Randy had provided valuable strategic and operational oversight to Superior throughout those years. Thank you, Randy, for your 15 years of service on Superior's Board of Directors. The remaining 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; Patrick Gottschalk; Douglas Harrison; Mary Jordan; Angelo Rufino; and myself, David Smith. The scrutineer for the meeting today is Kyle Gould of Computershare Trust Company of Canada. The COVID-19 pandemic has impacted Superior's business since it was first -- since it first emerged in 2020 and governments and businesses worldwide enacted emergency measures and restrictions to combat its spread. As our businesses were deemed critical and essential in both the United States and Canada from the outset, we've continued to operate throughout the pandemic with modified operating procedures to ensure the health and safety of our employees, customers and the communities we serve. Immediately following this formal meeting, Luc Desjardins will make a presentation on our first quarter performance and updated 2022 outlook. Note that the presentation contains forward-looking statements and the use of non-GAAP measures. Turning to Slide 2. I would like to take a moment to comment on the voting procedures to be used at today's meeting. You should now see on the screen the agenda for the meeting. Only a registered shareholder or duly appointed proxyholder can ask a question or vote at the meeting. Most shareholders or duly appointed proxyholders would have voted in advance of the meeting using the 15-digit control number provided to them by Computershare. If you voted in advance of the meeting or sent in your proxy and do not want to change your vote, no further action is required. All polls have been opened 15 minutes prior to the meeting. Please use the vote tab to submit your vote. To vote, select your voting direction from the options shown. Your vote has been cast when a checkmark appears. The polls will remain open for all matters being voted on until the last item of the formal business has concluded. If you have submitted your vote prior to this meeting, there is nothing for you to do unless you wish to change your vote. After each motion, registered shareholders and proxyholders 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 of your questions to the motions during the meeting. Any questions not answered during the formal portion of the meeting will be answered during the Q&A session 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. 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 the notice and formal proxy were mailed on April 4, 2022, to all shareholders of record as of March 25, 2022. The 2021 Annual Report, which includes the audited financial statements for the year ended December 31, 2021, was also mailed to those 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 proxyholder 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 for Darren Hribar, who is a duly appointed proxyholder, to move the motions of business. I will now proceed with the formal business of this meeting. I'm now tabling the 2021 Annual Report, which includes the consolidated financial statements and the auditor's report thereon. The annual report was duly mailed to those shareholders that had requested to receive it. Turning to Slide 4. The number of directors to be elected at this meeting has been fixed at 9. It is now in order to proceed with the election of 9 directors of Superior Plus Corp. The information circular lists the nominees for election for the ensuing year. May I now have the nominations for the 9 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, Patrick E. Gottschalk, Douglas J. Harrison, Mary B. Jordan, Angelo R. Rufino and David P. Smith.

Under the bylaws of the corporation, advance notice is required for additional nominations to the board. There were no other nominations received within the requirements of the advance notice bylaw, and therefore, I declare the nominations closed. The voting for directors is by individual director and 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 the motion to elect the nominees as directors of Superior Plus Corp? I hereby ask Darren Hribar to move the motion.

I move that the 9 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 proxyholder, 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 by using the vote tab. 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 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 as 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 have already voted or appointed a proxyholder, 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 by using the vote tab. 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 results of the voting. Turning to Slide 6. 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 formal 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 voted or appointed a proxyholder, 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 by accessing the vote tab. Ladies and gentlemen, I have received the preliminary scrutineer's report on the voting results. I've been advised by the scrutineers that based upon the proxies deposited for the meeting and the 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 upon at the meeting has been carried. I declare that each of the resolution is carried and direct that 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 laws. I direct that the final scrutineer's 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 this 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 during the formal part of the meeting.

Thank you, David, and good afternoon, everyone. Thanks for joining us for our annual general meeting. I've been looking forward to this opportunity to address you and discuss our accomplishments over the past year. Even though the challenges of COVID-19 and recent macroeconomic factors, we've achieved significant milestone in the past 12 months, positioning the company for future success thanks to the dedication and commitment of our employees. I would like to thank the Superior Plus employees for their perseverance in servicing our customers, supporting the community we operate in during this challenging time. I would also like to thank all of our employees working remotely, supporting our frontline drivers and the technician and those contributing in other ways to propel Superior forward as a stronger organization. I'm extremely proud of the way the Superior team responded quickly at the start of the pandemic to adapt and adjust operating procedure, allowing us to continue to provide our products and services to our customers and to continue work on our business initiatives focused on growth through acquisition, organic growth, continuous improvement and development of talent. We've done an excellent job of moving Superior forward through this unprecedented time, and I'm excited about what we can accomplish as we emerge from the pandemic and continue our Superior Way Forward strategic initiatives. As we emerge from the pandemic phase of COVID-19, we faced 2 challenges such as rising inflation and labor costs. Our management team has undertaken an in-depth review of where we may be at risk due to rising costs in order to focus on mitigating the risk of inflation to operating profit and cash flow. As we have demonstrated in the past, Superior's Energy Distribution business is resilient in the face of challenging economic conditions. Another theme I would like to discuss is ESG and the transition to lower carbon fuel. We're focused on that transition to cleaner renewable energy at Superior. We know propane will play an important role in the transition to the future state of net zero emission due to its versatility as a mobile fuel, lower carbon emission and backup capability from other energy source. We have significant expertise in the distribution of mobile energy solution so we can adapt our business model to transport other energy source, such as green hydrogen as evident on our new partnership with Charbone in Quebec. In the next few slides, I cover the highlights since the last AGM and provide an update on the Superior Way Forward strategic plan. After that, Beth, our CFO, will join the call to discuss our financial performance, steps we have taken -- undertaken to strengthen our balance sheet and provide an update on our guidance for 2022. Again, I will respond to any questions you have submitted prior to or during this call by e-mailing our Investor Relations team. Turning to Slide 9. Since our last AGM, we have been busy laying the strategic framework for the next 5 years and executing on that plan. In May 2021, we host a virtual Investor Day where we outlined our next strategic plan, the Superior Way Forward, which I'll touch in greater detail on the next slide. As I mentioned earlier, in January 2022, we announced a partnership with Charbone Hydrogen to distribute green hydrogen to commercial and industrial customers in Quebec. On May 5, 2022, we finalized the agreement with Charbone, which provides Superior with green hydrogen supply initially in Quebec and potentially other parts of Canada as they intend to build multiple plants across the country. We are excited to partner with Charbone to distribute mobile cost-efficient green hydrogen as we look to advance our renewable and low carbon energy strategy. In the past 12 months, we have completed -- or announced 8 acquisition of propane distributor in the Eastern U.S., Upper and Middle West and California. The majority of these acquisitions are in our existing footprint, so we expect the synergy opportunities from these acquisitions to be in line with our historical experience where we have achieved an average of 25% improvement of the EBITDA. The acquisition of Kamps and Kiva in the Western U.S.A. is a great opportunity as it provides us with a large operating platform for the west part of U.S.A. On April 6, 2022, we closed a common equity insurance for gross proceeds of $288 million. The offering was well supported by our shareholders, including our largest investors, [indiscernible]. Turning to Slide #10. Through the Superior Way Forward strategic plan, we are targeting EBITDA from operation in the range of $700 million to $750 million by 2026. Based on the 2020 EBITDA from operation of $402 million, that represents a CAGR of 10% to 11% over the next 5 years. We plan to achieve an EBITDA growth through acquisition, spending a total of $1.9 billion organic growth, continuous improvement and anticipate commercial customer demand recovery, primarily in Canada, after COVID. Based on acquisition announced -- or completed since the start of 2021, we have achieved over 40% of the acquisition target in the first year of the plan. We also remain on track with our targeted EBITDA growth. One of the largest acquisitions, Kamps Propane, which includes Kiva Energy, just closed in March and will not be fully reflected in our 2022 results. The acquisition of Quarles, which is also expected to close later this year, so we won't get a full year impact from that acquisition as well. However, we're confident in the synergy opportunity from both acquisitions and our ability to improve those businesses using our Superior Way operating platform, reduction of redundant back-office function, drivers and technician efficiency as well as leveraging our scale and expertise to improve our customer experience with our digital investment approach. We still have a strong pipeline of opportunities for acquisition in the U.S. and Canada that are at varying levels of progress. So we believe the acquisition target of $1.9 billion is achievable by 2026. Based on our experience integrating businesses and achieving synergy, our expected organic growth, constant focus on continuous improvement and the anticipated return of commercial demand, we also feel that the 2026 target range of $700 million to $750 million is achievable. We are well positioned to execute on our Superior Way Forward plan and continue to grow this industry-leading business. I'll now turn the call over to Beth to walk you through our financial information and our ESG focus.

Thank you, Luc, and good afternoon, everyone. Thanks for joining us today. Turning to Slide 12. Let's look at our financial performance since the last AGM. Our 2022 first quarter adjusted EBITDA increased 18% compared to 2021. This was primarily due to the contribution from acquisitions we completed in the last 9 months of 2021, higher margins, colder weather in Canada and lower corporate costs. The increase in adjusted EBITDA was partially offset by increased operating costs related to acquisitions and impacts from inflation and higher labor costs. Full year results for 2021 were modestly higher than the prior year as the impact from COVID-19 on customer demand and warmer weather was offset primarily by the contribution from acquisitions. Turning to Slide 13. Looking back at our results from the past 5 years, our adjusted EBITDA increased significantly from 2017 to 2019 as the contribution from our Retail East and Canwest acquisitions and related realized synergies improved results. This increase was partially offset by lower results in Western Canada related to the decline in oil field activity and weaker economic conditions. As we felt the impact of COVID-19, due to the resiliency of our business, our results in 2020 and 2021 still improved modestly. Due to the contribution from acquisitions completed in the past 2 years and moderate improvement in commercial demand, we expect 2022 results to be significantly higher than 2021. We're increasing our 2022 adjusted EBITDA guidance range to $425 million to $465 million from the previous range of $410 million to $450 million. The increase reflects year-to-date performance and expected contribution from the acquisition of the propane and distillate distribution assets of Quarles Petroleum Inc. The updated guidance range has a midpoint of $445 million, which represents a 12% increase compared to 2021 adjusted EBITDA of $398 million. Turning to Slide 14. In the past 3 years, our free cash flow conversion profile has been in the range of 79% to 84%, demonstrating the strong free cash flow profile of the Energy Distribution business. Our expected capital expenditures for 2022 are $130 million to $150 million, which is higher than 2021 due to the timing of purchases and the expected delivery of vehicles as well as the increased scale of business with the recent acquisitions. Turning to Slide 15. Through the refinancing of the high-yield notes in 2021, we reduced our debt cost while extending our maturities. Our weighted average cost of debt on the high-yield notes is 4.4%, and we're in a good position from a maturity profile perspective as we do not have any significant upcoming maturities until 2026. Our recent equity issuance further reduced our debt and leverage profile, providing ample liquidity for future acquisitions. We're committed to our BB and Ba2 credit ratings and our target debt-to-EBITDA leverage range of 3.5 to 4x, which is in line with our desired credit rating. We expect future acquisitions to be financed using our cash flow from operations and incremental debt. We could further increase our credit facility by $300 million through the accordion feature. However, we don't anticipate any need to access that liquidity in the near term. We have a strong balance sheet, sustainable cash flows and access to capital markets to support the execution of our Superior Way Forward initiatives. Turning to Slide 16. This slide covers some of our ESG and corporate social responsibility accomplishments and initiatives. We understand that ESG and sustainability considerations are important to shareholders and other stakeholders when evaluating companies to invest in or partner with. It's also important to us. As an organization, we're focused on improving our ESG strategy and how we share and communicate it with our stakeholders. We will be releasing our 2022 Sustainability Report for the year ended December 31, 2021, in June 2022. Our next report will include significantly more information compared to our last report and reflects our transition to a pure-play energy business. We've grown significantly through acquisitions in the past 1.5 years, which provides a challenge when reporting on sustainability, but we remain dedicated to advancing our sustainability journey. As Luc mentioned at the start of the call, our primary product, propane, is expected to play a significant role in the transition to a lower carbon and eventually, net zero environment. We're also evaluating opportunities to distribute lower carbon, renewable propane product and green hydrogen using our existing fleet. We're constantly looking at opportunities to reduce our carbon footprint by delivering fuel more efficiently. Further, our products can replace higher carbon fuels, such as heating oil [ for propane ] applications and gasoline and diesel for vehicles and power generation. I'll now turn the call back to Luc to conclude.

Well, thank you, Beth. And I'd like to finish on Slide 18. You have seen this slide before, and the slide summarizes what we put as an [ importance ] of critical issue at Superior. Have a great management team as evidenced by our ability to quickly react and adjust our business in response to COVID-19 and complete significant transaction to position the company for future success. Have a strong balance sheet and then to thank Beth and her team for the effort to position us well -- position financially us very well going forward. Our commitment to the safety of our employees and other stakeholders is also important for success as an organization. We're in a good position to emerge from the pandemic phase of COVID-19 stronger, and we will look to capitalize on the number of -- numerous growth opportunities in front of us. With that, I would like to address any questions that came ahead of the meeting or during the meeting.

We have a few comments that came in from shareholders during the meeting. So the first one, shareholder meetings on a virtual basis are not acceptable as it disenfranchises many minority shareholders as it's too complicated, especially for seniors, to navigate through Computershare or other platforms.

So I hear you. I think we're still in the situation where there's -- the pandemic is probably going away, but it's still there and present. And I would have been very prudent on traveling, moving people around, getting hundreds of people in a room. So take note of your point. But for the moment, this year, we thought that was the best thing to do for the health and safety of everyone, in particular, people from -- that would travel to visit us.

Specifically to Douglas Harrison, he didn't attend all the meetings and the shareholder wanted to mention that this person should be compensated accordingly.

So that's something I can take note of. But for us, we know that we pay our Board what the market is, and we take into consideration the number of hours and the number of meetings we have. And we feel that he's been well remunerated for all the quality and suggestion that he brings to our Board.

And then as well on the director compensation, increasing the Chair of the Board retainer by 12.9% is not acceptable. As well, the retainer fees on the other Board members were raised by 75%, including annual committee retainer of 47% and 100% for the compensation chair. So in a situation where the workforce isn't getting this type of increases, how does Superior justify these increases?

Well, to us -- I'll ask Darren for a specific point that this was made to, maybe give [ us an insert ] to that.

Yes, I think -- Luc, I think just some context there. I think -- I mean, you referenced it already. When we're paying our Board members, obviously, we go out and look at what the market is paying. And again, last year, we retained Mercer, which is an independent compensation consultant, and we're aiming for equivalent to what our peers pay. So I think that's the basis on what we did. In terms of the specific amounts that are referenced, that there are some percentages drawn out in terms of increases, I think it's helpful to look at the structure of the compensation program for directors. We eliminated meeting fees last year. And just looking at the circular, you can see that, that eliminated about $370,000 in cost. So doing that, we -- to replace that compensation, we're increasing the retainer amount. So basically, rather than counting each meeting and billing fees each time, we just had a higher retainer, which was par to what the market was doing.

We do hope that satisfies the answer to that question.

There's no further questions.

Well, if there's no further questions, so I guess we'll thank everyone to participate in our company, and we're in good shape. We're looking good from an operation point of view and the success of this enterprise, as you probably will know tonight and tomorrow, starting the year very strongly. And we thank you all for being interested in our company. On that note, thank you, everyone.

Have a good evening.

This concludes the meeting. You may now disconnect.