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

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 already voted or appointed a proxy holder, no further action is required unless you would like to change your vote. If you are participating in the meeting through the virtual platform, please record your vote by accessing the vote tab. Ladies and gentlemen, I have received a preliminary scrutineers' report on the voting results. I have been advised by the scrutineers that based upon the proxies deposited for the meeting and total votes received in advance of the votes entered through the virtual platform, each of the motions and resolutions for all matters to be voted upon at the meeting has been carried. I declare that each of the resolutions carried and direct that the results of the poll and the votes be 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 scrutineers' report on the votes be filed with the minutes of this meeting. That concludes the formal part of the meeting. Is there any other business to come before the meeting? If not, I will entertain a motion to conclude the meeting.

I move that the meeting be concluded.

Ladies and gentlemen, I declare the meeting concluded. We will now move to a short presentation by Allan MacDonald, President and CEO of Superior and he can address any questions we didn't respond to during the formal part of this meeting.

Thank you, David. Good afternoon, everyone. Let me begin by saying how proud I am to be here as the newest member of the Superior Plus team. I'd like to thank the Chairman and Superior Plus' Board of Directors for this incredible opportunity. I'd also like to thank the executive team, in particular, Beth Summers, our CFO; and Andy Peyton, our Chief Operating Officer, for their patience and willingness to help me get acquainted with the business. Since joining last month, I've been meeting teams across Canada and the United States and have met with a number of analysts and industry thought leaders. I'm in no position to share any thoughts on strategy at this point, but I've been learning a lot, and I'd like to share some thoughts on what I've seen so far. I've been impressed with the caliber of the talent at Superior. Teams across the business have been warm in their welcome and have taken great pride in helping me understand how we work hard at Superior to create a great experience for our customers, knowing that the safe and timely delivery of their energy needs is critical to keeping homes and businesses functioning. They also impressed me with their commitment to safety. Creating a safe working environment is a community effort. It's not about compliance, it's about commitment and more than anything, watching out for each other, working together to keep us all safe. Superior has made some bold moves over the past year. The recent propane acquisitions like Kamps and Quarles are being effectively integrated into the Superior family and their contribution to Superior's performance is not insignificant. Superior has demonstrated a history of creating value by consolidating regional and local propane providers, and these acquisitions underscore the company's core competency in this regard as they create value through growth and generating economies of scale. Superior has also been investing in real impactful ESG opportunities. As a leader in energy distribution, Superior has a unique vantage point when it comes to reducing their customers' carbon footprints with alternative energy options. The Certarus acquisition is a perfect example of this visionary thinking and commitment to transformation. I see Certarus as a perfect partner for Superior. Their progress in bringing natural gas and next-generation energy products to industrial and commercial customers will continue to grow with the assistance of Superior's market presence, infrastructure, expertise and capital investment capacity. After the deal is finalized, we'll be working closely with Curtis Philippon, the Certarus CEO and his team to welcome the Certarus team into the Superior family and to support them in continuing their successful growth journey. Finally, in speaking with members of the investment community, I'm hearing very consistent messages. They're optimistic. They believe the propane industry has a great deal of potential and companies like Superior are well positioned and will be successful by focusing on 3 important things. First, growing organically. Winners will innovate their operational capabilities beyond where the industry has been traditionally to drive organic growth. Secondly, continue to create value by acquiring regional and local players where it creates scale and deliver shareholder value. And finally, leading the transition to include alternate energy options for our customers. Winning will mean investing in the development of ESG business models and markets. This will mean the addition of real profitable ESG lines of business for Superior across Canada and the United States. So as I look to the next quarter, I'm concentrating on continuing to get familiar with the business, the teams, their challenges and importantly, our opportunities. And I'm keen to continue a dialogue with our stakeholders about Superior's performance and how we plan to continue to lead the industry. to demonstrate our operational capabilities and strategies to deliver medium- and long-term shareholder value. I'd now like to hand the call over to our CFO, Beth Summers, who will cover some highlights since the last AGM, provide an update on the Certarus acquisition and an update on Superior's financial results.

Thank you, Allan, and good afternoon, everyone. Thanks for joining us today. Turning to Slide 10. Since our last AGM in May 2022, the Superior team has been busy working on our strategic initiatives to grow EBITDA and position the company for the future. In that time, we completed 5 propane tuck-in acquisitions across the U.S. and one in Canada, deploying approximately $238 million in capital. We've also made great progress on the integration of the Kamps, Kiva and Quarles acquisitions as well as the smaller tuck-in acquisitions. In December, we announced the acquisition of Certarus, which is expected to add a significant organic growth opportunity through the fast-growing compressed natural gas market as well as renewable natural gas and hydrogen. Certarus is an exciting addition for Superior as they're among the leaders in North America in the distribution of CNG, RNG and hydrogen through their virtual pipeline network. Certarus enables their customers to access lower cost and lower carbon fuel alternatives with significant ESG benefits. On the capital allocation front, we put an NCIB in place in October 2022 and repurchased close to 1 million shares in the fourth quarter of 2022. We still have the NCIB available so we can repurchase additional shares when the returns make sense as part of our dynamic capital allocation approach. We also made good progress reducing our leverage from 4.3x at September 30, 2022, to 3.9x at March 31, 2023. Our leverage decreased, driven primarily by the receipt of proceeds from the ERCO vendor note in January 2023 and cash flow from operations. Now turning to Slide 11. The Certarus acquisition provides Superior with the growing lower carbon fuel distribution platform and Superior and Certarus have an identical focus on safety, customer service and reliability of supply for our customers. That will continue to serve us well in growing our collective customer relationships. The acquisition will be financed through the issuance of 48.8 million shares to the Certarus shareholders and borrowing from our existing revolving credit facility and a new sidecar revolving credit facility. We have U.S. regulatory approval and the Certarus shareholders have voted in favor of the transaction. So we're only waiting for the Canadian Competition Bureau to complete the review of the transaction, and we still expect to close in the second quarter. Certarus continues to perform well ahead of expectations, delivering first quarter EBITDA of $63 million, which was a new record for quarterly EBITDA for Certarus. Based on the first quarter results and expectations for the rest of 2023, Certarus 2023 adjusted EBITDA will be in the range of $175 million to $185 million. which is an approximately 40% improvement compared to 2022 based on the midpoint. Certarus continues to grow the renewable product offerings with RNG and hydrogen and Certarus is recognized as a leader in the distribution of hydrogen in North America. Just recently, Certarus was awarded the Hydrogen Delivery Award at the 2023 Canadian Hydrogen Convention. Turning to Slide 13. Looking at our financial performance since the last AGM, we achieved record first quarter results in 2023 with adjusted EBITDA of $272 million. That was a 9% increase compared to prior year, primarily due to the contribution from acquisitions completed in the last 10 months of 2022 and higher margins, partially offset by lower volumes related to significantly warmer weather. Full year results for 2022 were $51.4 million higher than the prior year as the contribution from acquisitions and increased gross margins were partially offset by increased operating costs related to labor and the impact of inflation. Turning to Slide 14. Looking back at our results from the past 5 years, our adjusted EBITDA grew significantly from 2018 to 2019 after the acquisition of NGL Retail East in 2018 and the achievement of synergies related to that acquisition. From 2019 to 2022, our adjusted EBITDA was relatively consistent as the contribution from acquisitions and related realized synergies were partially offset by the impact on public health restrictions related to COVID on commercial propane demand primarily in Canada. In 2022, we saw $51.4 million or 13% increase in EBITDA driven primarily by contribution from acquisitions. And in 2023, we expect contribution from the Certarus acquisition and, to a lesser extent, acquisitions completed in the past 2 years and moderate improvement in commercial propane demand will significantly increase our adjusted EBITDA. We're increasing our 2023 adjusted EBITDA guidance range to $620 million to $660 million from the previous range of $585 million to $635 million. The increase reflects first quarter performance for Certarus and Superior and our expectations for the rest of 2023. The updated guidance range has a midpoint of $640 million, which represents a 42% increase compared to 2022 adjusted EBITDA of $450 million. Our balance sheet remains strong, I'm turning to Slide 15, in the targeted range and long-dated maturities. Through the refinancing of the high-yield notes in 2021, we reduced our debt cost and locked in low interest rates 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 current portion of variable rate debt is approximately 18% of our total debt outstanding. So we're also comfortable with our debt profile in the current high interest rate environment. We are 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're currently within our targeted range and expect to remain in that range once the Certarus acquisition closes. We expect to fund Certarus growth CapEx requirements and our legacy propane CapEx requirements as well as any tuck-in acquisitions with incremental debt and our cash flow from operations. We have a strong balance sheet, sustainable cash flows and access to capital markets to support the execution of our near- and long-term growth initiatives. Turning to Slide 16 and 17. We recognize that our stakeholders are looking to us for increased disclosure around our ESG efforts and our strategy to reduce the impact of climate change as well as communicating how we are responding to social and governance issues. Superior and Certarus share many common values when it comes to ESG and sustainable business practices. Our core competency is the delivery of mobile energy, and we expect Certarus will further help us in our goal to diversify our business through the safe and efficient distribution of other lower carbon fuels and alternative energy such as RNG and hydrogen. To echo Allan's earlier comments, safety is a top priority for Superior and Certarus, and our goal is to ensure our employees have a safe workplace, and we're keeping the communities, where we operate, safe as well. On Slide 19, there are many compelling reasons to invest in Superior. And a few key areas I'd like to highlight are specifically our track record on execution, strong free cash flow as well as our approach to capital allocation. We've achieved significant growth through acquisitions in the past 3 years and our best-in-class integration processes will help ensure we deliver on our synergy targets and further enhance the businesses we've acquired. Our legacy propane business and the Certarus business generates significant free cash flow, so we anticipate having the required capital to reinvest in the business and grow while at the same time paying our shareholders an attractive dividend, which is currently yielding over 7%. Finally, on capital allocation, we have options when it comes to driving shareholder returns, and we'll evaluate and deploy capital to those opportunities that are expected to deliver the highest returns for our shareholders. With that, I'll turn the call back over to Allan to conclude.

Thanks, Beth. I'm very excited to be part of this team, and I look forward to continuing to work with this talented and motivated group. I'd also like to thank and congratulate the team at Certarus, and our employees here at Superior on delivering a very, very strong first quarter. Finally, I'd like to thank our shareholders, our customers, our communities, and our Board of Directors. With that, I'll ask Rob if there are any questions that have come in.

I can confirm no more questions to come in.

If there are no further questions, have a good day, and thank you for attending our Annual General Meeting.

This concludes today's event. Thank you so much for joining today's meeting. You all may disconnect, and have a great day.