Superior Plus Corp. Announces 2018 Third Quarter Results, Confirms 2018 Financial Outlook and Introduces 2019 Adjusted EBITDA Guidance

Superior Plus Corp. (“Superior”) (TSX: SPB) announced today its financial and operating results for the third quarter ended September 30, 2018. All financial figures are expressed in Canadian dollars.

“The third quarter of 2018 was transformational for Superior, having closed the largest acquisition in the company’s history in July, significantly expanding the U.S. retail propane business. We also announced three more acquisitions since our second quarter results, and continue to gain momentum on achieving our Evolution 2020 initiatives,” said Luc Desjardins, Superior’s President and Chief Executive Officer.

Evolution 2020 and Strategy Highlights

• Superior confirms guidance of 2018 Adjusted EBITDA to be in the range of $345 million to $375 million, and the Adjusted Operating Cash Flow (“AOCF”) per share before transaction costs financial outlook is $1.75 to $1.95. Superior is introducing its 2019 Adjusted EBITDA guidance range of $445 million to $495 million, a 31% increase compared to the midpoint of the 2018 Adjusted EBITDA guidance. See “2018 & 2019 Financial Outlook and Adjusted EBITDA Guidance” for additional details.
• On July 10, 2018, the company completed the transformative acquisition of NGL Propane (“NGL”) for total consideration of approximately $1.2 billion. This acquisition provides an established platform to execute on further expansion opportunities in the U.S. with an increased presence throughout the Eastern U.S.
• Superior anticipates it will exceed the previous target of achieving $15.0 million in run-rate synergies related to the Canwest acquisition exiting 2018. The remaining run-rate synergies of approximately $5.0 million are anticipated to be achieved in 2019 by the end of the second quarter to achieve the full run-rate synergies of $20.0 million. The consolidation and integration of Canwest and Superior Propane field operations was completed in six waves in 2018, with the final wave completed in September.
• U.S. propane distribution began NGL integration activities during the third quarter and anticipates achieving $12.5 million in realized synergies in 2019. The synergies are anticipated to come primarily from operational and procurement cost-savings, effective supply chain management as well as improving margin through merging the sales and marketing teams and sharing best practices.
• On October 2, 2018, Superior closed the acquisition of all of the issued and outstanding shares of United Liquid Gas Company Inc., which operates under the trade name United Pacific Energy an independent wholesale natural gas liquid distributor in California. This acquisition adds significant sales volumes to the wholesale natural gas liquid portfolio, diversifies our customer and geographical base and includes an attractive group of assets with coastal exposure which is integral in the continued expansion of the wholesale business along the western coast of the U.S.

Business and Financial Highlights

• AOCF per share before transaction and other costs during the third quarter was $0.01, 91% lower than the prior year quarter primarily due to an increase in interest expense, the impact from the increase in the weighted average shares outstanding and a decrease in Adjusted EBITDA. The increase in interest expense and weighted average shares outstanding increased as a result of the debt and equity financing for the NGL transaction. Net cash flows from operating activities in the third quarter were $11.6 million lower than the prior year quarter primarily due to an increase in interest paid, partially offset by an increase in cash generated from operations.
• Superior achieved third quarter Adjusted EBITDA of $25.9 million, a $3.1 million or 11% decrease over the prior year quarter primarily due to lower Energy Distribution EBITDA from operations and higher realized losses on foreign currency hedging contracts, partially offset by higher Specialty Chemicals EBITDA from operations and lower corporate costs.
• Superior generated a net loss of $39.8 million in the third quarter, which was $85.0 million lower than the net loss of $124.8 million in the prior year quarter. The improvement was primarily due to a reduction of income tax expense and increased gross profit, offset in part by an increase in selling, distribution and administrative costs. Income tax expense decreased $129.5 million compared to the prior year quarter as the prior year included a deferred income tax expense of $119.4 million related to the settlement with the CRA regarding Superior’s corporate conversion, which occurred on December 31, 2008. Gross profit increased $36.1 million primarily due to the contribution from NGL, Canwest and tuck-in acquisitions as well as improved chlor-alkali results. Selling, Distribution and Administrative costs increased $61.7 million primarily due to the incremental expenses from NGL, Canwest and tuck-in acquisitions.
• Specialty Chemicals EBITDA from operations for the third quarter was $35.5 million, an increase of $5.9 million or 20% compared to the prior year quarter primarily due to higher chlor-alkali sales prices and modestly higher sales volumes, and higher sodium chlorite results related to strong demand from the oil and gas sector, partially offset by lower sodium chlorate gross profits. Sodium chlorate gross profits decreased primarily due to higher electricity costs and lower sales volumes.
• During the third quarter, Energy Distribution realized negative EBITDA from operations of $3.3 million, a decrease of $3.5 million compared to the prior year quarter primarily due to the continued weak wholesale natural gas liquid market fundamentals, including weak butane prices, as well as the impact of the divested U.S. wholesale assets during the second quarter. Energy Distribution gross profits were higher due to the contribution of NGL, partially offset by the weaker wholesale market fundamentals as well as the impact of the divested U.S. wholesale and retail distillate assets during the second quarter. Energy Distribution operating expenses were higher primarily due to the incremental expenses from NGL and Canwest, partially offset by the impact from the divested wholesale business and realized synergies. The third quarter generally provides the lowest contribution for Energy Distribution due to the seasonality of heating-related and oilfield demand.
• On September 21, 2018, Superior completed the acquisition of all of the propane distribution and other assets of Porco Energy Corp., an independent propane distributor in New York serving residential and commercial customers.
• On November 1, 2018, Superior closed the acquisition of all of the propane distribution and other assets of Musco Fuel & Propane LLP, an independent propane distributor in Connecticut serving residential and commercial customers.
• On September 27, 2018, Superior announced an At-the-Market (“ATM”) equity financing program, which allows Superior to sell common shares directly from treasury. The ATM equity program enables Superior to issue smaller amounts of common shares at a lower cost than traditional equity offerings, without a discount and at prevailing trading prices. The ATM equity program was put in place as Superior maintains a robust pipeline of tuck-in acquisition opportunities, and the program serves as a low-cost, flexible funding alternative for these smaller acquisitions. During the third quarter of 2018, Superior issued 29,300 common shares for net proceeds of $0.4 million under the ATM program.

	Financial Overview
		Three Months Ended						Nine Months Ended
		September 30						September 30
	(millions of dollars, except per share amounts)		2018			2017			2018			2017
	Revenue		481.7			465.5			1,839.7			1,616.1
	Gross Profit		169.7			133.6			618.6			497.3
	Net earnings (loss)		(39.8)			(124.8)			14.3			(73.2)
	Net earnings (loss) per share, basic and diluted	$	(0.23)		$	(0.87)		$	0.09		$	(0.51)
	EBITDA from operations (1)		32.2			29.8			240.5			190.0
	Adjusted EBITDA (1)		25.9			29.0			221.3			188.5
	Cash flows from (used in) operating activities		(16.5)			(4.9)			221.4			123.9
	Cash flows from (used in) operating activities per share – basic (2)	$	(0.10)		$	(0.03)		$	1.45		$	0.87
	Cash flows from (used in) operating activities per share – diluted (2)	$	(0.10)		$	(0.03)		$	1.45		$	0.87
	AOCF before transaction and other costs (1)(3)		2.2			15.0			169.6			151.8
	AOCF before transaction and other costs per share – basic (1)(2)(3)	$	0.01		$	0.11		$	$1.11		$	1.06
	AOCF before transaction and other costs per share –diluted (1)(2)(3)	$	0.01		$	0.11		$	$1.11		$	1.05
	AOCF (1)		(13.4)			(4.5)			$137.6			123.4
	AOCF per share– basic and diluted (1)(2)	$	(0.08)		$	(0.03)		$	0.90		$	0.86
	Cash dividends declared		31.5			25.7			82.9			77.1
	Cash dividends declared per share	$	0.18		$	0.18		$	0.54		$	0.54

(1) EBITDA from operations, Adjusted EBITDA and AOCF are non-GAAP measures. Refer to “Non-GAAP Financial Measures” for further details and the MD&A for reconciliations.

(2) The weighted average number of shares outstanding for the three and nine months ended September 30, 2018 is 171.4 million and 152.5 million, respectively (three and nine months ended September 30, 2017 - 142.8 million). The dilutive weighted average number of shares outstanding for the three and nine months ended September 30, 2018 is 171.4 million and 152.5 million respectively (three and nine months ended September 30, 2017 - 148.6 million shares).

(3) Transaction and other costs for the three and nine months ended September 30, 2018 and 2017 are related to acquisition activities and integration of acquisitions. See “Transaction and Other Costs” for further details.

Segmented Information

			Three Months Ended				Nine Months Ended
			September 30				September 30
	(millions of dollars)		2018		2017		2018		2017
	EBITDA from operations(1)
	Energy Distribution		(3.3)		0.2		136.2		99.1
	Specialty Chemicals		35.5		29.6		104.3		90.9
			32.2		29.8		240.5		190.0

(1) See “Non-GAAP Financial Measures”.

2018 & 2019 Financial Outlook and Adjusted EBITDA Guidance

• Superior expects 2018 Adjusted EBITDA and AOCF per share guidance consistent with the financial outlook provided at the end of the second quarter of 2018. The 2018 Adjusted EBITDA range is $345 million to $375 million, and the AOCF per share before transaction costs financial outlook is $1.75 to $1.95.
• Superior is introducing its 2019 Adjusted EBITDA guidance range of $445 million to $495 million, a 31% increase compared to the midpoint of the 2018 Adjusted EBITDA guidance. Superior’s key assumptions related to the 2019 Adjusted EBITDA guidance are:
  • EBITDA from operations for Energy Distribution is anticipated to be higher than 2018 primarily due to full year results from NGL as well as the incremental contribution from the six tuck-in acquisitions completed in 2018. The increase also reflects approximately $5.0 million in incremental synergies related to Canwest and $12.5 million related to NGL to be realized in 2019. Supply market fundamentals in the Canadian propane distribution business are anticipated to be consistent with 2018. Average weather, as measured by degree days for 2019 is anticipated to be consistent with the five-year average.
  • EBITDA from operations for Specialty Chemicals is anticipated to be consistent with 2018 as an increase in chlor-alkali and sodium chlorite gross profit is expected to be offset by a decrease in sodium chlorate gross profit and a modest increase in operating expenses. Chlor-alkali gross profit is anticipated to be higher than 2018 due to continued improvements in hydrochloric acid pricing driven by robust oil and gas demand, as well as modest improvements in caustic soda pricing. Sodium chlorite gross profit is anticipated to be higher than 2018 on continued strong pricing and demand driven by the oil and gas sector, as well as customer mix. Sodium chlorate gross profit is anticipated to be lower than 2018 as modest improvements in sales prices are expected to be more than offset by increases in electricity mill rates and transport costs as well as the impact of a weaker U.S. dollar compared to 2018.

Debt Management Update

Superior remains focused on managing both its total debt and its total debt to Adjusted EBITDA ratio. Superior’s total debt to Adjusted EBITDA ratio for the trailing twelve months (TTM) was 3.7x as at September 30, 2018, compared to 3.3x at December 31, 2017. The debt levels and total leverage ratio as at September 30, 2018 were higher than December 31, 2017, due to increased borrowings on the credit facilities and unsecured notes associated with the NGL and other tuck-in acquisitions. The TTM Adjusted EBITDA includes pro forma Adjusted EBITDA for acquisitions completed in 2017 and 2018.

The total debt to Adjusted EBITDA ratio is currently above the long-term target of 3.0x. Superior anticipates the total debt to Adjusted EBITDA ratio to be in the range of 3.8x to 4.2x as at December 31, 2018 primarily due to acquisitions completed and increased working capital related to the seasonality of the Energy Distribution segment. Superior anticipates total debt to Adjusted EBITDA will be in the range of 3.6x to 4.0x as at December 31, 2019 as cash generated from operations is used to repay debt.

MD&A and Financial Statements

Superior’s MD&A, the unaudited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements for the three and nine months ended September 30, 2018 provide a detailed explanation of Superior’s operating results. These documents are available online at Superior’s website at www.superiorplus.com under the Investor Relations section and on SEDAR under Superior’s profile at www.sedar.com.

2018 Third Quarter Conference Call

Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2018 Third Quarter Results at 10:30 a.m. EST on Thursday, November 8, 2018. To participate in the call, dial: 1-844-389-8661. Internet users can listen to the call live, or as an archived call on Superior’s website at www.superiorplus.com under the Events section.

Non-GAAP Financial Measures

Throughout the third quarter earnings release, Superior has used the following terms that are not defined by International Financial Reporting Standards (“Non-GAAP Financial Measures”), but are used by management to evaluate the performance of Superior and its business: AOCF before and after transaction and other costs, earnings before interest, taxes, depreciation and amortization (“EBITDA”) from operations, and Adjusted EBITDA. These measures may also be used by investors, financial institutions and credit rating agencies to assess Superior’s performance and ability to service debt. Non-GAAP financial measures do not have standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Securities regulations require that non-GAAP financial measures are clearly defined, qualified and reconciled to their most comparable GAAP financial measures. Except as otherwise indicated, these non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific items may only be relevant in certain periods. See “Non-GAAP Financial Measures” in the MD&A for a discussion of non-GAAP financial measures and their reconciliations.

The intent of non-GAAP financial measures is to provide additional useful information to investors and analysts, and the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate non-GAAP financial measures differently.

Investors should be cautioned that AOCF, EBITDA from operations, and Adjusted EBITDA should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior’s performance. Non-GAAP financial measures are identified and defined as follows:

Adjusted Operating Cash Flow and Adjusted Operating Cash Flow per Share

AOCF is equal to cash flow from operating activities as defined by IFRS, adjusted for changes in non-cash working capital, other expenses, non-cash interest expense, current income taxes and finance costs. Superior may deduct or include additional items in its calculation of AOCF; these items would generally, but not necessarily, be infrequent in nature and could distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring. AOCF and AOCF per share are presented before and after transaction and other costs.

AOCF per share before transaction and other costs is calculated by dividing AOCF before transaction and other costs by the weighted average number of shares outstanding. AOCF per share is calculated by dividing AOCF by the weighted average number of shares outstanding.

AOCF is a performance measure used by management and investors to evaluate Superior’s ongoing performance of its businesses and ability to generate cash flow. AOCF represents cash flow generated by Superior that is available for, but not necessarily limited to, changes in working capital requirements, investing activities and financing activities of Superior. AOCF is also used as one component in determining short-term incentive compensation for certain management employees.

The seasonality of Superior’s individual quarterly results must be assessed in the context of annualized AOCF. Adjustments recorded by Superior as part of its calculation of AOCF include, but are not limited to, the impact of the seasonality of Superior’s businesses, principally the Energy Distribution segment, by adjusting for non-cash working capital items, thereby eliminating the impact of the timing between the recognition and collection/payment of Superior’s revenues and expenses, which can differ significantly from quarter to quarter. AOCF is reconciled to cash flow from operating activities.

Adjusted EBITDA

Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, losses (gains) on disposal of assets, finance expense, restructuring costs, transaction and other costs, and unrealized gains (losses) on derivative financial instruments. Adjusted EBITDA is used by Superior and investors to assess its consolidated results and ability to service debt. Adjusted EBITDA is reconciled to net earnings before income taxes.

EBITDA from operations

EBITDA from operations is defined as Adjusted EBITDA excluding costs that are not considered representative of Superior’s underlying core operating performance, including gains and losses on foreign currency hedging contracts, corporate costs and transaction and other costs. Management uses EBITDA from operations to set targets for Superior (including annual guidance and variable compensation targets). EBITDA from operations is reconciled to net earnings before income taxes.

Forward Looking Information

Certain information included herein is forward-looking information within the meaning of applicable Canadian securities laws. Forward-looking information may include statements regarding the objectives, business strategies to achieve those objectives, expected financial results (including those in the area of risk management), economic or market conditions, and the outlook of or involving Superior, Superior LP and its businesses. Such information is typically identified by words such as “anticipate”, “believe”, “continue”, “estimate”, “expect”, “plan”, “forecast”, “future”, “outlook, “guidance”, “may”, “project”, “should”, “strategy”, “target”, “will” or similar expressions suggesting future outcomes.

Forward-looking information in this document includes: future financial position, consolidated and business segment outlooks, expected Adjusted EBITDA, expected AOCF and AOCF per share, expected total debt to Adjusted EBITDA ratio, business strategy and objectives, development plans and programs, business expansion and cost structure and other improvement projects, market conditions in Canada and the U.S., expected synergies from the integration of Canwest, EBITDA and synergies associated with the NGL acquisition, expected seasonality of demand, future economic conditions, our ability to obtain financing on acceptable terms, expected life of facilities and statements regarding net working capital and capital expenditure requirements of Superior or Superior LP.

Forward-looking information is provided for the purpose of providing information about management’s expectations and plans about the future and may not be appropriate for other purposes. Forward-looking information herein is based on various assumptions and expectations that Superior believes are reasonable in the circumstances. No assurance can be given that these assumptions and expectations will prove to be correct. Those assumptions and expectations are based on information currently available to Superior, including information obtained from third party industry analysts and other third party sources, and the historic performance of Superior’s businesses. Such assumptions include anticipated financial performance, current business and economic trends, the amount of future dividends paid by Superior, business prospects, utilization of tax basis, regulatory developments, currency, exchange and interest rates, future commodity prices relating to the oil and gas industry, future oil rig activity levels, trading data, cost estimates, our ability to obtain financing on acceptable terms, the assumptions set forth under the “Financial Outlook” sections of our MD&A. The forward looking information is also subject to the risks and uncertainties set forth below.

By its very nature, forward-looking information involves numerous assumptions, risks and uncertainties, both general and specific. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, as many important factors are beyond our control, Superior’s or Superior LP’s actual performance and financial results may vary materially from those estimates and intentions contemplated, expressed or implied in the forward-looking information. These risks and uncertainties include incorrect assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel, fluctuations in foreign currency and exchange rates, inadequate insurance coverage, liability for cash taxes, counterparty risk, compliance with environmental laws and regulations, reduced customer demand, operational risks involving our facilities, force majeure, labour relations matters, our ability to access external sources of debt and equity capital, and the risks identified in (i) our MD&A under the heading “Risk Factors” and (ii) Superior’s most recent Annual Information Form. The preceding list of assumptions, risks and uncertainties is not exhaustive.

When relying on our forward-looking information to make decisions with respect to Superior, investors and others should carefully consider the preceding factors, other uncertainties and potential events. Any forward-looking information is provided as of the date of this document and, except as required by law, neither Superior nor Superior LP undertakes to update or revise such information to reflect new information, subsequent or otherwise. For the reasons set forth above, investors should not place undue reliance on forward-looking information.

For more information about Superior, visit our website at www.superiorplus.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20181107005983/en/

Source: Business Wire (November 7, 2018 - 6:04 PM EST)

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