Superior Plus Corp. Announces 2021 Second Quarter Results and Updated 2021 Adjusted EBITDA Guidance

TORONTO--(BUSINESS WIRE)--Superior Plus Corp. (“Superior”) (TSX:SPB) announced today its financial and operating results for the second quarter ended June 30, 2021. Unless otherwise expressed, all financial figures are expressed in Canadian dollars.

“We have made great progress this year on our Superior Way Forward acquisition and operational improvement initiatives, including six acquisitions completed or announced for total consideration of ~$600 million,” said Luc Desjardins, President and Chief Executive Officer. “We are increasing the bottom end of our Adjusted EBITDA guidance range to reflect the expected impact from the acquisitions in 2021, and reflecting some anticipated challenges in the last six months due to weaker wholesale propane market fundamentals, the higher commodity price environment in 2021 and the slower than expected recovery from COVID-19. Our trailing twelve month Adjusted EBITDA as at June 30, 2021 pro forma the impact of the acquisitions announced in 2021 was approximately $460 million, which excludes the anticipated synergies we expect based on past acquisitions.”

Financial Highlights:

• Superior achieved second quarter Adjusted EBITDA of $31.6 million, a $7.5 million or 19% decrease over the prior year quarter primarily due to lower EBITDA from operations in U.S. propane distribution (“U.S. Propane”) and higher corporate costs, partially offset by higher EBITDA from operations in Canadian propane distribution (“Canadian Propane”) and realized gains on foreign exchange hedging contracts compared to a realized loss in the prior year quarter.
• Net loss from continuing operations of $36.1 million in the second quarter decreased $36.0 million over the second quarter of 2020 primarily due higher finance expense, lower unrealized gains on derivatives and foreign currency translation of borrowing recorded in the current quarter and lower gross profit, partially offset by the impact of the Canadian Emergency Wage Subsidy (“CEWS”) recorded in the current quarter.
• U.S. Propane EBITDA from operations was $14.0 million, a decrease of $13.1 million or 48% compared to the prior year quarter primarily due to higher operating costs and lower adjusted gross profit. Due to the seasonality of the U.S. Propane business, the second quarter represents ~16% of the volumes and ~22% of the operating costs for the year. The seasonality impact results in a more substantial increase in operating costs from acquisitions with less contribution from volumes and adjusted gross profit. Adjusted gross profit decreased $9.4 million primarily due to lower sales volumes, excluding the impact of acquisitions, related to warmer weather and, to a lesser extent, lower unit margins related to short-term margin opportunities that existed in Q1 2020 with lower commodity prices, the impact of the stronger Canadian dollar on the translation of U.S. denominated adjusted gross profit and customer mix, partially offset by the impact of acquisitions completed in the last twelve months and higher commercial demand as the U.S. emerged from COVID-19 restrictions. Sales volumes were higher due to the contribution from acquisitions completed in the last twelve months partially offset by warmer weather. Average weather, as measured by degree days, across markets where U.S. propane operates for 2021 was 14% warmer than the prior year and 4% colder than the five-year average. Operating costs increased by $5.2 million primarily due to higher sales volumes, incremental costs related to acquisitions completed in the last twelve months and inflation, partially offset by cost-saving initiatives, realized synergies from acquisitions and the impact of the stronger Canadian dollar on U.S. denominated operating expenses.
• Canadian Propane EBITDA from operations of $23.0 million, increased $1.8 million or 8% from the prior year quarter primarily due to lower operating expenses, partially offset by lower adjusted gross profit. Operating costs decreased $4.7 million due to the impact from the CEWS benefit and cost-saving initiatives. Adjusted gross profit decreased $3.9 million primarily due to lower average margins related to weaker wholesale propane fundamentals and customer mix, partially offset by higher commercial and wholesale sales volumes. Average weather across Canada for the second quarter, as measured by degree days was 14% warmer than the prior year and 7% warmer than the five-year average.
• Corporate costs for the second quarter of 2021 were $8.2 million, a $1.2 million increase compared to the prior year quarter due to higher long-term incentive plan costs related to share price appreciation in the current quarter. In the second quarter of 2021, Superior had realized gains on foreign currency hedging contracts of $2.8 million compared to realized losses of $2.2 million in the prior year quarter due to the average hedge rate of the foreign exchange contracts and the strengthening of the Canadian dollar.
• AOCF before transaction and other costs during the second quarter was $9.0 million, a $5.5 million or 38% decrease compared to the prior year quarter primarily due to lower Adjusted EBITDA and higher cash tax expenses, partially offset by lower interest expense. AOCF before transaction and other costs per share was $0.04, $0.04 lower than the prior year for the reasons noted above and an increase in the weighted average shares outstanding. Weighted average shares outstanding, which assumes the exchange of the preferred shares into common shares, were higher than the prior year quarter primarily due to the issuance of preferred shares in the prior year, and to a lesser extent, the impact of shares issued under the Dividend Reinvestment Plan in the prior year.
• Superior’s Total Net Debt to Adjusted EBITDA leverage ratio for the trailing twelve months ended June 30, 2021, was 3.3x, which is within Superior’s long-term target range of 3.0x to 3.5x.
• Superior is increasing the bottom end of the 2021 Adjusted EBITDA range due to the expected contribution from the Freeman Gas and Kamps acquisitions, with expected Adjusted EBITDA guidance in the range of $390 million to $420 million up from the previously disclosed range of $380 million to $420 million. Average weather for the remainder of 2021 is anticipated to be consistent with the five-year average for the U.S. and Canada.

Strategic Developments and Highlights:

• On July 14, 2021, Superior announced that one of its wholly-owned subsidiaries entered into an agreement to acquire the equity interests of Kamps Propane, Inc., High Country Propane, Inc., Pick Up Propane, Inc., Kiva Energy, Inc., Competitive Capital, Inc. and Propane Construction and Meter Services (collectively, “Kamps”) for an aggregate purchase price of approximately US $240 million (CDN $299 million) before adjustments for working capital. Founded in 1969 by John Kamps, Kamps is an established independent family owned and operated retail and wholesale propane distributor based in California servicing approximately 45,000 residential, commercial and wholesale customers. Kamps has 14 retail branch offices, 5 company-operated rail terminals, over 375 vehicles and approximately 280 employees.
• On July 7, 2021, Superior acquired the assets of a retail propane distribution company based in North Carolina, operating under the tradename, Williams Energy Group (“Williams Energy”). Founded in 1998, Williams Energy is an established independent retail propane distributor delivering approximately 7 million gallons of propane annually to 12,000 retail and commercial customers in North Carolina.
• On June 16, 2021 Superior acquired the assets of a retail propane distribution company based in South Carolina, operating under the tradename, Freeman Gas and Electric Co., Inc. (“Freeman”) for an aggregate purchase price of US $169.2 million ($207.7 million) before adjustments for working capital.
• On May 18, 2021, Superior sold CDN$500 million aggregate principal amount of 4.25% unsecured notes due May 18, 2028, which were issued at par (the “Offering”). Superior also redeemed all of its outstanding: (i) CDN$400 million principal amount of 5.25% senior unsecured notes due February 27, 2024 (the “2024 Notes”) in accordance with the indenture governing the 2024 Notes; and (ii) CDN$370 million principal amount of 5.125% senior unsecured notes due August 27, 2025 (the “2025 Notes”) in accordance with the indenture governing the 2025 Notes.
• On May 25, 2021, Superior outlined the “Superior Way Forward”, a strategic roadmap targeting EBITDA from Operations of $700 million to $750 million in 2026.
• On April 19, 2021, recognizing the importance of sustainability and ESG principles in how Superior operates and in its business strategy, Superior published its inaugural Sustainability Report.
• On April 9, 2021, Superior amended the syndicated credit facility and extended the maturity to May 8, 2026. There were no changes to the total commitments available under the credit facility ($750 million), the accordion capacity ($300 million) or the financial covenants.
• On April 9, 2021 Superior completed the sale of its Specialty Chemicals business to Birch Hill Equity Partners for total consideration of $725 million (the “Transaction”). Under the terms of the Transaction, Superior received $600 million in cash proceeds from Birch Hill, subject to certain adjustments, and $125 million in the form of a 6% unsecured note issued by the affiliate of Birch Hill that is acquiring Specialty Chemicals. The consideration received is subject to certain post-closing adjustments as previously disclosed.

Financial Overview
	Three Months Ended				Six Months Ended
	June 30				June 30
(millions of dollars, except per share amounts)		2021		2020		2021		2020 ^(1)
Revenue		365.6		305.5		1,205.1		988.2
Gross Profit		149.1		169.3		498.2		515.4
Net earnings (loss) from continuing operations		(36.1)		(0.1)		39.3		1.0
Net earnings (loss) from continuing operations per share, basic and diluted ^(4)	$	(0.24)	$	(0.00)	$	0.16	$	0.01
EBITDA from operations ^(2)		$37.0		$48.3		$253.4		$238.3
Adjusted EBITDA ^(2)		$31.6		$39.1		$243.2		$224.5
Net cash flows from operating activities		105.1		187.6		231.2		272.4
Net cash flows from operating activities per share, basic and diluted ^(4)	$	0.51	$	1.07	$	1.12	$	1.55
AOCF before transaction and other costs ^(2)(3)		$9.0		$14.5		$194.3		$170.9
AOCF before transaction and other costs per share, basic and diluted ^(2)(3)(4)	$	0.04	$	0.08	$	0.94	$	0.97
AOCF ^(2)		4.7		9.5		180.6		160.3
AOCF per share, basic and diluted ^(2)(4)	$	0.02	$	0.05	$	0.88	$	0.91
Cash dividends declared on common shares		31.7		31.6		63.4		63.0
Cash dividends declared per share	$	0.18	$	0.18	$	0.36	$	0.36

^(1)	Comparative figures have been reclassified to exclude the results of the Specialty Chemicals segment due to the divestiture of the segment subsequent to the end of the first quarter. See the unaudited condensed interim consolidated financial statement for the three and six months ended, second quarter, 2021 and 2020.
^(2)	EBITDA from operations, Adjusted EBITDA, interest expense, AOCF before transaction and other costs, and AOCF are Non-IFRS measures. See “Non-IFRS Financial Measures”.
^(3)	Transaction and other costs for the three and six months ended, second quarter, 2021 and 2020 are related to acquisition activity, restructuring and the integration of acquisitions and the divestiture of the Specialty Chemical segment. See “Transaction and Other Costs” for further details.
^(4)	The weighted average number of shares outstanding for the three and six months ended, second quarter, 2021 was 206.0 million (three and six months ended, June 30, 2020 was 175.6 million, and 175.3 million). The weighted average number of shares assumes the exchange of the preferred shares into common shares. Superior has a Dividend Reinvestment and Optional Share Purchase Plan (“DRIP”) that was active for dividends paid in March through June 2020. There were no other dilutive instruments with respect to AOCF per share and AOCF before transaction and other costs per share for the three and six months ended, second quarter, 2021 and 2020.

Segmented Information
		Three Months Ended		Six Months Ended
		June 30		June 30
	(millions of dollars)	2021	2020^(1)	2021	2020^(1)
	EBITDA from operations^(1)
	U.S. Propane Distribution	14.0	27.1	154.1	130.5
	Canadian Propane Distribution	23.0	21.2	99.3	107.8
		37.0	48.3	253.4	238.3

^(1)

See “Non-IFRS Financial Measures”. Comparative figures have been reclassified to exclude the results of the Specialty Chemicals segment as a result of the announced divestiture and subsequent closing of the transaction. See the unaudited condensed interim consolidated financial statements and notes thereto as at and for the three and six months ended, second quarter, 2021 and 2020.

MD&A and Financial Statements

Superior’s MD&A, the unaudited Interim Condensed Consolidated Financial Statements and the Notes to the Interim Condensed Consolidated Financial Statements for the three and six months ended June 30, 2021 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.

2021 Second Quarter Conference Call

Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the Second Quarter Results at 10:30 a.m. EDT on Thursday, August 12, 2021. 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-IFRS Financial Measures

Throughout the first quarter earnings release, Superior has used the following terms that are not defined by International Financial Reporting Standards (“Non-IFRS 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 Gross Profit, Adjusted EBITDA, Total Debt to Adjusted EBITDA leverage ratio, 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-IFRS financial measures do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Securities regulations require that Non-IFRS financial measures are clearly defined, qualified and reconciled to their most comparable IFRS financial measures. Except as otherwise indicated, these Non-IFRS 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-IFRS Financial Measures” in the MD&A for a discussion of Non-IFRS financial measures and certain reconciliations to IFRS financial measures.

The intent of Non-IFRS 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-IFRS 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 IFRS as an indicator of Superior’s performance.

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.

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. Please refer to the Financial Overview section of the MD&A for the reconciliation.

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. Please refer to the Results of Operating Segments in the MD&A for the reconciliations.

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.

Adjusted EBITDA is a significant performance measure used by management and investors to evaluate Superior’s ongoing performance of its businesses. Adjusted EBITDA 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 Adjusted EBITDA.

Total Net Debt to Adjusted EBITDA Leverage Ratio and Pro Forma Adjusted EBITDA

Adjusted EBITDA for the Total Net Debt to Adjusted EBITDA Leverage Ratio 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 (“Pro Forma Adjusted EBITDA”). Pro Forma Adjusted EBITDA is used by Superior to calculate its Total Net Debt to Adjusted EBITDA Leverage Ratio.

Total Net Debt is determined by taking the sum of borrowings before deferred financing fees and lease liabilities and reducing this by the cash and cash equivalents balance.

To calculate the Total Net Debt to Adjusted EBITDA Leverage Ratio divide Total Net Debt by Pro Forma Adjusted EBITDA. Total Net Debt to Adjusted EBITDA Leverage Ratio is used by Superior and investors to assess its ability to service debt.

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, updated 2021 Adjusted EBITDA guidance range, anticipated synergies on acquisitions in 2021, the markets for our products and our financial results, business strategy and objectives, development plans and programs, organic growth, weather, economic activity in Western Canada, product pricing and sourcing, wholesale propane market fundamentals, exchange rates, expected seasonality of demand, and future economic conditions.

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 the closing of the Kamps acquisition in the third quarter of 2021 in accordance with the terms of the agreement, integration of acquisitions in 2021 consistent with past experience, 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, expected life of facilities and statements regarding net working capital and capital expenditure requirements of Superior or Superior LP, 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 risks relating to satisfaction of the conditions to, and completion of, the Kamps acquisition, our ability to integrate acquisitions and realize synergies consistent with past experience, incorrect assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel, the anticipated impact of the COVID-19 pandemic and the expected economic recession, 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.