SPB Superior Plus Corp

Superior Plus Corp. (“Superior”) (TSX:SPB) announced today the financial and operating results for the first quarter ended March 31, 2019. Unless otherwise stated, all financial figures are expressed in Canadian dollars.

“We were able to achieve record results again for the first quarter. The significant contribution from the NGL acquisition and the tuck-in acquisitions completed in 2018 as well as our ability to execute on the integration and the realized synergies from our acquisitions has helped us in achieving our Evolution 2020 initiatives ahead of our expectations,” said Luc Desjardins, Superior’s President and Chief Executive Officer. “In 2019, we will continue our focus on growing our Energy Distribution business organically and through acquisitions as well as leveraging our digitalization strategy and superior operating platform to reduce operating expenses”.

Business and Financial Highlights

• Superior achieved record first quarter Adjusted EBITDA of $239.9 million, a $87.3 million or 57% increase over the prior year quarter primarily due to higher U.S. propane distribution (“U.S. Propane”) EBITDA from operations as well as higher EBITDA from operations in Canadian propane distribution (“Canadian Propane”) and Specialty Chemicals. The adoption of IFRS 16 in the first quarter of 2019 resulted in a $9.2 million increase in EBITDA from operations on a consolidated basis.
• Superior also achieved record adjusted operating cash flow (“AOCF”) before transaction and other costs for the first quarter of $211.0 million, a $72.9 million or 53% increase compared to the prior year quarter primarily due to the higher EBITDA from operations noted above, partially offset by higher interest expense and cash income taxes. AOCF before transaction and other costs per share was $1.21, 25% higher than the prior year quarter due to the increase in AOCF and offset in part by the increase in weighted average shares outstanding. The increase in weighted average shares outstanding was a result of the equity financing related to the acquisition of NGL Retail East (“NGL”).
• Superior had net earnings of $158.7 million in the first quarter, $113.7 million or 253% higher than the prior year quarter primarily due to an increase in revenue and gross profit as well as a realized gain on derivative financial instruments compared to a realized loss in the prior year quarter. The increase in net earnings was partially offset by higher selling, distribution and administrative costs and finance expense.
• Due to the strong 2019 first quarter results and the impact of the IFRS 16 adoption, Superior is updating its 2019 Adjusted EBITDA range to $490 million to $530 million, which increases the midpoint to $510 million.
• In the first quarter, U.S. Propane achieved approximately US $5.7 million in synergies related to the NGL acquisition. The realized synergies were primarily due to supply chain efficiencies, margin management improvements and operational expense savings. Superior expects to achieve US $20 million in run-rate synergies exiting 2019, which is a year ahead of previous expectations of achieving US $20 million in run-rate synergies by the end of 2020.
• U.S. Propane achieved record EBITDA from operations for the first quarter of $125.4 million, an increase of $84.8 million or 209% compared to the prior year quarter primarily due to the contribution from the NGL and tuck-in acquisitions completed in 2018 and higher average unit margins. U.S. Propane residential sales volumes were 375 million litres, 240 million litres higher than prior year quarter due to the incremental volumes from NGL and tuck-in acquisitions completed in 2018. Total volumes increased 93 million litres as the increase in residential volumes was offset in part by lower wholesale volumes due to the sale of certain refined fuel assets and the wholesale business in the second quarter of 2018. Average U.S. Propane sales margins in the first quarter were 39.6 cents per litre compared to 20.3 cents per litre in the prior year quarter primarily due to the higher proportion of residential sales volumes, sales and marketing and integration initiatives and the positive impact of the weaker Canadian dollar on the translation of U.S. denominated gross profit.
• Canadian Propane achieved strong EBITDA from operations for the first quarter of $84.3 million, an increase of $4.4 million or 6% compared to the prior year quarter primarily due to the contribution from the United Pacific Energy (“UPE”) acquisition, realized synergies from Canwest, and the impact of the IFRS 16 adoption, partially offset by lower oilfield volumes and lower average unit margins. Oilfield volumes decreased due to reduced activity in Western Canada, and average unit margins decreased due to the impact of the higher proportion of wholesale propane volumes related to UPE. Retail propane margins, which exclude wholesale volumes, were 5% higher than the prior year quarter due to customer mix.
• Specialty Chemicals EBITDA from operations for the first quarter was $39.6 million, an increase of $1.5 million or 4% compared to the prior year quarter primarily due to the impact of the adoption of IFRS 16 and higher gross profit, partially offset by higher freight costs. Gross profit increased due to higher sodium chlorate and chlor-alkali sales prices, partially offset by lower hydrochloric acid, caustic soda and sodium chlorate sales volumes and higher electricity mill rates at Superior’s North American plants.
• On May 8, 2019, Superior’s wholly-owned subsidiaries Superior Plus LP, Superior Plus US Financing Inc. and Commercial E Industrial ERCO (Chile) Limitada completed an extension of its $750 million syndicated credit facility with ten lenders. The syndicated credit facility will now mature on May 8, 2024 with no changes to the financial covenants and can be expanded up to $1,050 million.

 

Financial Overview

  Three Months Ended March 31 (millions of dollars, except per share amounts)   2019   2018 Revenue 1,024.1   874.9 Gross Profit     411.8     289.2 Net earnings 158.7 45.0 Net earnings per share, basic and diluted (1)   $ 0.91   $ 0.32 EBITDA from operations (2) 249.3 158.6 Adjusted EBITDA (2)     239.9     152.6 Net cash flows from operating activities 112.2 60.6 Net cash flows from operating activities per share – basic and diluted (1)   $ 0.64   $ 0.42 AOCF before transaction and other costs (2)(3) 211.0 138.1 AOCF before transaction and other costs per share – basic and diluted (1)(2)(3)   $ 1.21   $ 0.97 AOCF (2) 206.0 130.7 AOCF per share– basic and diluted (1)(2)   $ 1.18   $ 0.91 Cash dividends declared 31.5 25.7 Cash dividends declared per share   $ 0.18   $ 0.18

(1) The weighted average number of shares outstanding for the three ended March 31, 2019 is 174.9 million (March 31, 2018 – 142.8 million). There were no dilutive instruments with respect to AOCF per share, net earnings per share or net cash flows from operating activities per share for the three months ended March 31, 2019 or 2018.

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

(3) Transaction and other costs for the three months ended March 31, 2019 and 2018 are primarily related to integration activities and costs associated with acquisitions. Refer to “Transaction and Other Costs” in the MD&A for further details.

Segmented Information        

 

 

Three months ended

March 31 (millions of dollars)   2019   2018 EBITDA from operations(1)   Canadian Propane Distribution 84.3 79.9 U.S. Propane Distribution 125.4 40.6 Specialty Chemicals   39.6   38.1     249.3   158.6

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

Evolution 2020 Update

• In the first quarter, Canadian Propane achieved approximately $1.0 million in synergies related to the integration of Canwest, which increases the run-rate to $17.5 million. Superior expects to achieve $21.5 million in run-rate synergies by the third quarter of 2019.
• On April 1, 2019 Superior closed the acquisition of the propane distribution assets of Phelps Sungas. Inc and BMK of Geneva, Inc. (“Phelps”), an independent propane distributor in upstate New York for total consideration of US$19.5 million (CDN $26.0 million), which includes an adjustment for net working capital. The Phelps acquisition is the first tuck-in acquisition of 2019, and Superior continues to evaluate other opportunities to acquire retail propane distribution assets in the Eastern U.S. and California.
• On May 3, 2019, Superior acquired the Sheldon Gas Company (“Sheldon”), an independent propane distributor and terminal operator in Northern California, serving residential, agricultural and commercial customers (the “Sheldon Acquisition”). The purchase price was paid with cash from Superior’s credit facility. The Sheldon Acquisition adds 2.6 million gallons (9.8 million litres) of retail propane distribution sales volumes to Superior’s U.S. Propane Distribution operations, and provides Superior with a retail propane footprint in California. Superior also acquired the majority ownership in the Sheldon United Terminal as part of the Sheldon Acquisition. Superior had already obtained a minority interest in the Sheldon United Terminal as part of the acquisition of United Pacific Energy.

Debt Management and Leverage Update

Superior is focused on managing its total debt and its total debt to Adjusted EBITDA ratio. Superior’s total debt as at March 31, 2019 was $1,972 million, an increase of $86 million from December 31, 2018, primarily due to the impact of the adoption of IFRS 16, which increased debt by $171 million. Superior’s debt for credit facility and note indenture covenant calculations (“Senior debt”) excludes the impact of IFRS 16, and was $1,801 million as at March 31, 2019, which was a decrease of $85 million from December 31, 2018 primarily due to cash generated from operations. Credit Facility EBITDA, which excludes the impact of IFRS 16 for the trailing twelve months ended March 31, 2019 was $457 million. See “Non-GAAP Financial Measures” for the definition of Credit Facility EBITDA and the MD&A for the reconciliation from Adjusted EBITDA. Superior’s Senior Debt to Credit Facility EBITDA ratio as at March 31, 2019 was 3.9x compared to 4.2x as at December 31, 2018.

Superior anticipates its Senior Debt to Credit Facility EBITDA leverage ratio (“Credit Facility leverage ratio”) as at December 31, 2019 will be in the range of 3.6x to 4.0x. Superior estimates the total debt to Adjusted EBITDA leverage ratio at December 31, 2019 would be 0.1x higher than the Credit Facility leverage ratio due to the impact of IFRS 16.

Superior is well within its covenants related the credit facility and the note indentures. Superior also had available liquidity of $229 million available under the credit facility as at March 31, 2019.

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 months ended March 31, 2019 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.

2019 First Quarter Conference Call

Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2019 First quarter Results at 4:00 p.m. EDT on Thursday, May 9, 2019. To participate in the call, dial: 1-844-389-8661. Internet users can listen to the call live and watch the presentation, or as an archived call on Superior’s website at www.superiorplus.com under the Events section.

Annual General Meeting and 2019 First Quarter Results Presentations

Superior has posted presentations on the Superior website in the Investor Relations section that will be used during the Annual General Meeting and the 2019 First Quarter Conference Call. The Annual General Meeting and First Quarter Results presentations contain information related to Superior’s financial results as well as updates on Superior’s operations and Evolution 2020 initiatives.

Non-GAAP Financial Measures

Throughout the first 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, Adjusted EBITDA, Senior Debt, Credit Facility EBITDA and Senior Debt to Credit Facility EBITDA leverage ratio. 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 to GAAP financial measures.

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, Adjusted EBITDA and Credit Facility 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.

Non-GAAP Financial Measures Used for bank covenant purposes

Senior Debt

Senior Debt includes total borrowing before deferred financing fees and vehicle lease obligations, and excludes the remaining lease obligations. Senior Debt is used by Superior to calculate its debt covenants and other credit information.

Credit Facility EBITDA

Credit Facility EBITDA is defined as Adjusted EBITDA calculated on a 12-month trailing basis giving pro forma effect to acquisitions and dispositions adjusted to the first day of the calculation period, and excludes the impact from the adoption of IFRS 16 and EBITDA from undesignated subsidiaries. Credit Facility EBITDA is used by Superior to calculate its debt covenants and other credit information.

Credit Facility leverage ratio

Credit Facility leverage ratio is defined as Senior Debt divided by Credit Facility EBITDA. Senior Debt to Credit Facility EBITDA is used by Superior for calculation of bank covenants and other credit information.

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, anticipated impact of IFRS 16 on leverage, expected total debt to Adjusted EBITDA ratio, expected Compliance Debt to Compliance EBITDA leverage ratio, business strategy and objectives, development plans and programs, business expansion and cost structure and other improvement projects, weather, product pricing and sourcing, electricity costs, exchange rates, 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. Additional forward-looking information in this document includes achievement of Evolution 2020 initiatives, which assumes no material divestitures of existing businesses and is based on non-organic growth through acquisitions (including synergies) estimated to contribute approximately $10 million to $70 million in EBITDA; organic growth initiatives throughout all divisions to 2020 anticipated to provide approximately $30 million to $50 million in EBITDA, representing a 3-5% compound annual growth rate to 2020; and the anticipated recovery in the chlor-alkali sector within the Specialty Chemicals division anticipated to provide $10 million to $30 million in incremental EBITDA to 2020 EBITDA from operations. The Evolution 2020 initiatives also assume U.S. Propane Distribution grows by over $160 million which includes the addition of normalized EBITDA of NGL Propane and anticipated run-rate synergies from NGL Propane.

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.

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Beth Summers Executive Vice President and Chief Financial OfficerPhone: (416) 340-6015

Rob Dorran Vice President, Investor Relations and TreasurerPhone: (416) 340-6003Toll Free: 1-866-490-PLUS (7587)