Superior Plus Corp. announced its financial and operating results for the third quarter ended September 30, 2021.
“During the third quarter, we were successful in our continued progress towards our Superior Way Forward acquisition and operational improvement initiatives,” said Luc Desjardins, President and Chief Executive Officer. “In the past twelve months, we have announced or closed eight acquisitions for an investment of approximately $625 million, and we continue to see a robust pipeline of acquisition opportunities in the U.S. and Canada.”
“Although our third quarter is our seasonally lowest, our results were modestly higher than the prior year quarter, and we are confirming our 2021 Adjusted EBITDA guidance,” added Desjardins. “Our sales volumes were higher due to acquisitions completed in the past twelve months and modest improvement in commercial and wholesale demand as COVID-19 restrictions are eased.”
Financial Highlights:
- Superior achieved third quarter Adjusted EBITDA of $13.0 million, a $2.2 million or 20% increase over the prior year quarter primarily due to lower corporate costs, and to a lesser extent, a higher realized gain on foreign currency hedging contracts partially offset by lower EBITDA from operations.
- Net loss from continuing operations of $35.9 million in the third quarter increased $9.8 million compared to the third quarter of 2020 primarily due to higher selling, distribution and administrative costs (“SD&A costs”), and lower gains on derivatives and foreign currency translation of borrowings, partially offset by higher gross profit and lower finance expense. Gross profit and SD&A costs increased primarily due to the impact of acquisitions completed in the past twelve months. Gains on derivatives and foreign currency translation of borrowings decreased due to the impact from the stronger Canadian dollar on the translation of U.S. denominated borrowings and foreign currency forward sales contracts. Finance expense decreased primarily due to lower average debt levels and lower average interest rates related to the senior unsecured notes.
- U.S. Propane EBITDA from operations was ($7.8) million, a decrease of $3.8 million compared to the prior year quarter primarily due to the higher operating costs, partially offset by higher adjusted gross profit. Operating costs and adjusted gross profit increased primarily due to the impact of acquisitions completed in the past twelve months. Due to the seasonality of the U.S. Propane business, the increase in operating costs more than offset the increase in gross profit. Adjusted gross profit increased $8.9 million primarily due to higher sales associated with acquisitions completed in the last twelve months, and, to a lesser extent, higher average unit margins and higher other services gross profit. Sales volumes increased due to the contribution from acquisitions completed in the last twelve months Average unit margins increased due to sales and marketing initiatives, including focused sales growth in higher margin propane customers, partially offset by the impact of the stronger Canadian dollar on U.S. denominated gross profit. Operating costs increased by $12.7 million primarily due to the impact of acquisitions completed in the past twelve months, partially offset by cost-saving initiatives, realized synergies and the impact of the stronger Canadian dollar on the translation of U.S. denominated operating costs.
- Canadian Propane EBITDA from operations of $21.2 million, decreased $0.4 million or 2% from the prior year quarter primarily due to higher operating costs, partially offset by higher adjusted gross profit. Operating costs increased $7.6 million primarily due to the impact from the lower Canadian Emergency Wage Subsidy (“CEWS”) benefit recorded during the quarter compared to the prior year quarter and higher volume-related costs, partially offset by lower incentive plan costs and cost-saving initiatives. Adjusted gross profit increased $7.2 million primarily due to higher average unit margins and higher sales volumes. Average unit margins increased primarily due to the timing of sales of carbon offset credits and stronger wholesale propane market fundamentals in the California market compared to the prior year quarter and customer mix. Sales volumes have increased primarily due to higher wholesale sales volumes in California related to increased demand as COVID restrictions were lifted.
- Corporate costs for the third quarter of 2021 were $1.0 million, a $6.1 million decrease compared to the prior year quarter due to long-term incentive plan recovery of $3.3 million in the current quarter compared to a long-term incentive plan cost of $2.6 million in the prior year quarter. The long-term incentive plan recovery in the current quarter was due to the decrease in the liability related to the lower share price at September 30, 2021 compared to June 30, 2021.
- AOCF before transaction and other costs during the third quarter was ($4.8) million, a $7.9 million increase compared to the prior year quarter primarily due to lower interest costs, and, to a lesser extent, higher Adjusted EBITDA and lower cash taxes. AOCF before transaction and other costs per share was ($0.02), $0.04 higher than the prior year due to an increase in AOCF before transaction and other costs, partially offset by an increase in weighted average shares outstanding. Weighted average shares outstanding, which assumes the exchange of the preferred shares into common shares, were higher than the prior comparable period due to the issuance of preferred shares to Brookfield Asset Management (the “Preferred Shares”) that are reflected on an as converted basis.
- Superior’s Total Net Debt to Adjusted EBITDA leverage ratio for the trailing twelve months ended September 30, 2021, was 3.5x, which is within Superior’s long-term target range of 3.0x to 3.5x. Total Net Debt to Adjusted EBITDA increased from 3.3x at June 30, 2021 primarily due to higher total debt. Total debt increased due to the acquisition of Williams Energy Group, lower cash flow from operations in the third quarter related to seasonality and higher net working capital.
- Superior is confirming its previously disclosed Adjusted EBITDA range of $390 million to $420 million.
Strategic Developments and Highlights:
- 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 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 September 23, 2021, Superior announced it had received a request for additional information (“second request”) from the United States Federal Trade Commission (“FTC”) in connection with the pending acquisition of Kamps. Kamps has also received a similar second request from the FTC. The second requests were issued under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”). Superior and Kamps are in the process of supplying the FTC with information related to the second request. Superior expects the second request may delay the closing of Kamps until the first quarter of 2022.
