Superior Plus Corp. Announces 2019 Second Quarter Results, Achievement of Evolution 2020 Goals and Increase in Anticipated Run-Rate Synergies Related to NGL Retail East

TORONTO--(BUSINESS WIRE)--Superior Plus Corp. (“Superior”) (TSX:SPB) announced today the financial and operating results for the second quarter ended June 30, 2019. All financial figures are expressed in Canadian dollars.

“Superior delivered strong second quarter results driven by the contribution from the NGL Retail East and tuck-in acquisitions completed in 2018, realized synergies from those acquisitions and higher sodium chlorate sales prices and volumes. We made great progress on the NGL Retail East integration and are well ahead of our expectations on the timing of the run-rate synergies,” said Luc Desjardins, President and Chief Executive Officer. “We achieved trailing twelve months EBITDA from operations for the period ended June 30, 2019 of $497 million, which is a $221 million increase compared to the full year 2016 EBITDA from operations, so we have delivered on our Evolution 2020 goals.”

Business and Financial Highlights

• Superior achieved second quarter Adjusted EBITDA of $59.7 million, a $16.9 million or 39% increase compared to the prior year quarter primarily due to higher EBITDA from operations from U.S. propane distribution (“U.S. Propane”), Specialty Chemicals and Canadian propane distribution (“Canadian Propane”), partially offset by higher corporate costs and realized losses on foreign exchange hedging contracts. Corporate costs for the second quarter were $3.5 million higher than the prior year quarter primarily due to an increase in long-term incentive plan costs related to the share price appreciation. Realized losses on foreign exchange hedging contracts for the second quarter were $3.2 million, a $1.3 million increase compared to the prior year quarter due primarily to the weaker Canadian dollar.
• Superior’s EBITDA from operations for the second quarter was $71.4 million, a $21.7 million or 44% increase compared to the prior year quarter, primarily due to contribution from NGL Retail East (“NGL Propane”), the impact from the adoption of IFRS 16 and to a lesser extent higher Canadian Propane and Specialty Chemicals results. The adoption of IFRS 16 resulted in a $9.0 million increase in EBITDA from operations for the second quarter on a consolidated basis.
• Superior also achieved adjusted operating cash flow (“AOCF”) before transaction and other costs for the second quarter of $31.0 million, a $1.7 million or 6% increase compared to the prior year quarter primarily due to higher Adjusted EBITDA, partially offset by higher interest expense. AOCF before transaction and other costs per share was $0.18, $0.03 lower than the prior year quarter due to an increase in weighted average shares outstanding offset in part by the increase in AOCF before transaction and other costs. The increase in weighted average shares outstanding was a result of the equity financing related to the acquisition of NGL Retail East. AOCF before transaction and other costs per share for the first six months was $1.38 per share, $0.21 or 18% higher than the prior year comparable period due to an increase in Adjusted EBITDA, partially offset by an increase in interest expense and weighted average shares outstanding.
• Superior had a net loss of $29.3 million in the second quarter, compared to net earnings of $9.1 million in the prior year quarter primarily due to an increase in selling, distribution and administrative costs and finance expense, partially offset by an increase in revenue, gross profit and unrealized gains on derivative instruments.
• On June 15, 2018, Superior provided updated Evolution 2020 Guidance at Superior’s Investor Day. Superior increased the estimate of improved EBITDA from operations compared to 2016 from a range of $50 million to $150 million to a range of $200 million to $250 million by 2020. Superior’s trailing twelve months EBITDA from operations for the period ended June 30, 2019, excluding the impact of IFRS 16, was $497 million, which is a $221 million increase compared to the full year 2016 EBITDA from operations. Given that Superior has achieved its Evolution 2020 aspirational goal ahead of 2020, we will not be providing further updates on the Evolution 2020 strategic initiatives. Superior expects to communicate its future strategy following completion of the Specialty Chemicals review process.
• In the second quarter, U.S. Propane achieved approximately US $3.8 million in synergies related to the NGL Propane acquisition, bringing the year-to-date total to US $9.4 million. The realized synergies in the first six months were primarily due to supply chain efficiencies, margin management improvements and operational expense savings. Based on integration work completed so far, Superior now expects to achieve US $24 million in run-rate synergies related to the NGL Propane acquisition, a 20% increase compared to the previous expectations of achieving US $20 million. Superior expects to achieve US $20 million of the estimated US $24 million in run-rate synergies exiting 2019.
• Superior is confirming its previously communicated 2019 Adjusted EBITDA guidance to be in the range of $490 million to $530 million. The low end of the 2019 Adjusted EBITDA range accounts for warmer than normal weather in Superior’s operating regions, as well as potential adverse market conditions across Superior’s areas of operations, and the high end of the 2019 Adjusted EBITDA range accounts for colder than normal weather in Superior’s operating regions and greater than expected contributions from acquisition synergies, wholesale propane market fundamentals, organic growth and improvements in North American chlor-alkali markets.
• U.S. Propane EBITDA from operations for the second quarter was $12.8 million, an increase of $10.9 million compared to the prior year quarter primarily due to the contribution from the NGL Propane and tuck-in acquisitions completed in 2018 and higher average unit margins. U.S. Propane residential sales volumes were 123 million litres, 84 million litres or 215% higher than prior year quarter due to the incremental volumes from the NGL Propane and tuck-in acquisitions completed in 2018. Total volumes increased 44 million litres or 28% 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 second quarter were 35.1 cents per litre compared to 19.3 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. Other services gross profit increased $9.4 million compared to the prior year quarter due to the incremental service revenue from the NGL Propane acquisition.
• Canadian Propane EBITDA from operations for the second quarter was $20.0 million, an increase of $2.9 million or 17% compared to the prior year quarter due to higher gross profit in the supply portfolio management business, realized synergies from Canwest and the impact of adopting IFRS 16, partially offset by lower sales volumes. Gross profit in the supply portfolio business increased due to the contribution from United Pacific Energy (“UPE”) and improved market fundamentals for wholesale natural gas liquids compared to the prior year quarter. Total sales volumes of 437 million litres were 57 million litres or 15% higher than the prior year quarter due to the increase in wholesale propane volumes, partially offset by a decrease in oilfield volumes.
• Specialty Chemicals EBITDA from operations for the second quarter was $38.6, an increase of $7.9 million or 26% compared to the prior year quarter due to the impact of adopting IFRS 16, and higher average sodium chlorate selling prices and sales volumes, partially offset by lower chlor-alkali selling prices and sales volumes for most products as well as higher freight costs and the impact of the weaker Canadian dollar on U.S. denominated expenses. The adoption of IFRS 16 in 2019 resulted in a $6.2 million increase in second quarter EBITDA from operations compared to the prior year quarter. Average selling prices for sodium chlorate increased primarily due to higher contract pricing compared to the prior year quarter and the impact from the weaker Canadian dollar on U.S. denominated sales. Chlor-alkali average selling prices and sales volumes were modestly lower due to reduced demand for caustic soda and hydrochloric acid, partially offset by higher caustic potash selling prices and sales volumes. Hydrochloric acid selling prices and sales volumes were lower due to weaker demand from the oil and gas fracking markets in Western Canada and the U.S. related to lower rig activity. Caustic soda selling prices and sales volumes are lower due to the impact from a weaker export market in the Gulf Coast region, which increases competition in the North American domestic markets. Caustic potash sales volumes and selling prices are higher due to customer mix and a strong start to the agricultural season in the Western U.S.
• On June 10, 2019, Superior announced it is considering a sale of its Specialty Chemicals business. Superior has not set a timetable for completion of the review process, and it does not intend to provide any updates unless a specific transaction or alternative is approved by the Board of Directors, the review process is concluded, or it is otherwise determined that disclosure is appropriate.
• On May 31, 2019, ERCO Worldwide (“ERCO”) announced to its employees and customers that it would be closing the sodium chlorate production facility in Saskatoon, Saskatchewan (“Saskatoon sodium chlorate facility”) before the end of 2019. The Saskatoon sodium chlorate facility is closing due to the negative impact from rising electrical power prices in the Province of Saskatchewan and the anticipated capital investment required to continue operating the facility reliably. The closure of the Saskatoon sodium chlorate facility is not expected to have an impact on the chlor-alkali production facility in Saskatoon. The Saskatoon sodium chlorate facility had an annual production capacity of 40,000 metric tonnes per year at the time of the announcement.
• Superior has approved expansions of the sodium chlorate production capacity at the Buckingham, Quebec and Valdosta, Georgia sodium chlorate facilities. Upon completion of the expansions, the existing capacity of 130,000 metric tonnes (MT) at the Buckingham facility is expected to increase by 5,000 MT, and the existing capacity of 100,000 MT at the Valdosta facility is expected to increase by 11,000 MT. The Buckingham expansion is anticipated to be completed through 2019 and 2020 with commercial production currently expected in the fourth quarter of 2020. The Valdosta expansion is expected to commence in 2020, with a target completion of 2021. The aggregate capital cost to be spent over 2019 and 2020 on the two expansion projects is expected to be $27 million, which will be partially offset by anticipated subsidies from Hydro Quebec. The expansion of the production capacity at the Buckingham and Valdosta facilities will support regional and export customer demand.

Financial Overview
	Three Months Ended				Six Months Ended
	June 30				June 30
(millions of dollars, except per share amounts)		2019		2018		2019		2018
Revenue		541.2		483.1		1,565.3		1,358.0
Gross Profit		218.6		159.7		630.4		448.9
Net earnings (loss)		(29.3)		9.1		127.3		54.1
Net earnings (loss) per share, basic and diluted ^(1)	$	(0.17)	$	0.06	$	0.73	$	0.38
EBITDA from operations ^(2)		71.4		49.7		320.7		208.3
Adjusted EBITDA ^(2)		59.7		42.8		299.6		195.4
Net cash flows from operating activities		163.5		177.3		275.7		237.9
Net cash flows from operating activities per share – basic and diluted ^(1)	$	0.93	$	1.24	$	1.58	$	1.67
AOCF before transaction and other costs ^(2)(3)		31.0		29.3		242.0		167.4
AOCF before transaction and other costs per share – basic and diluted^(1)(2)(3)	$	$0.18	$	0.21	$	$1.38	$	$1.17
AOCF ^(2)		17.8		20.3		223.8		151.0
AOCF per share – basic and diluted ^(1)(2)	$	$0.10	$	0.14	$	$1.28	$	$1.06
Cash dividends declared		31.5		25.7		63.0		51.4
Cash dividends declared per share	$	$0.18	$	0.18	$	$0.36	$	$0.36

_{(1) The weighted average number of shares outstanding for the three and six months ended June 30, 2019 is 174.9 million (June 30, 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 and six months ended June 30, 2019 and 2018.
(2) EBITDA from operations, Adjusted EBITDA, AOCF before transaction and other costs, and AOCF are Non-GAAP measures. Refer to “Non-GAAP Financial Measures” for further details and the second quarter Management Discussion & Analysis (“MD&A”) for reconciliations.
(3) Transaction and other costs for the three and six months ended June 30, 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		Six Months Ended
	June 30		June 30
(millions of dollars)	2019	2018	2019	2018
EBITDA from operations^(1)
Canadian Propane Distribution	20.0	17.1	104.3	97.0
U.S. Propane Distribution	12.8	1.9	138.2	42.5
Specialty Chemicals	38.6	30.7	78.2	68.8
	71.4	49.7	320.7	208.3

_{(1) EBITDA from operations is a Non-GAAP measure. See “Non-GAAP Financial Measures”.}

Business Development and Acquisition Update

• 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.
• On May 3, 2019, Superior closed the acquisition of Sheldon Oil Company and Sheldon Gas Company (“Sheldon”), an independent propane distributor and terminal operator in Northern California, serving residential, agricultural and commercial customers (the “Sheldon Acquisition”) for total consideration of US$15.8 million (CDN $21.3 million). The Sheldon Acquisition is Superior’s first retail propane distribution acquisition 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 remains focused on managing both its total debt and its Senior Debt to Credit Facility EBITDA leverage ratio. Superior’s total debt as at June 30, 2019 was $1,906 million, a decrease of $66 million from March 31, 2019 primarily due to cash flow from operations and reductions in net working capital. Superior’s debt for credit facility and note indenture covenant calculations (“Senior Debt”), which excludes the impact of IFRS 16, was $1,743 million as at June 30, 2019, a decrease of $58 million from March 31, 2019 and a decrease of $143 million from December 31, 2018, primarily due to cash generated from operations and a reduction in net working capital. Credit Facility EBITDA, which excludes the impact of IFRS 16 for the trailing twelve months ended June 30, 2019 was $466 million. See “Non-GAAP Financial Measures” for the definition of Senior Debt and Credit Facility EBITDA and “Non-GAAP Financial Measures” in the MD&A for the reconciliation of Credit Facility EBITDA from Adjusted EBITDA. Superior’s Senior Debt to Credit Facility EBITDA ratio as at June 30, 2019 was 3.7x compared to 3.9x as at March 31, 2019 and 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 up to 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 $296 million available under the credit facility as at June 30, 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 and six months ended June 30, 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 Second Quarter Conference Call

Superior will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the 2019 Second Quarter Results at 11:00 a.m. EST on Wednesday, August 14, 2019. 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 second 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 Senior Debt to Credit Facility 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 Propane acquisition, expected subsidies from Hydro Quebec, expected capital costs, project timing and commercial production related to the planned expansion of the Buckingham, Quebec and Valdosta, Georgia sodium chlorate facilities, 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 in this document includes expected 2019 Adjusted EBITDA, which assumes no material divestitures in 2019.

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.