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Edited Transcript of SPB.TO earnings conference call or presentation 14-Nov-19 3:30pm GMT

Q3 2019 Superior Plus Corp Earnings Call

CALGARY Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Superior Plus Corp earnings conference call or presentation Thursday, November 14, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Beth Summers

Superior Plus Corp. - Executive VP & CFO

* Darren Bart Hribar

Superior Plus Corp. - Senior VP & Chief Legal Officer

* Luc Desjardins

Superior Plus Corp. - President, CEO & Director

* Rob Dorran

Superior Plus Corp. - VP of IR & Treasurer

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Conference Call Participants

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* David Francis Newman

Desjardins Securities Inc., Research Division - Analyst

* Elias A. Foscolos

Industrial Alliance Securities Inc., Research Division - Equity Research Analyst

* Jacob Jonathan Bout

CIBC Capital Markets, Research Division - MD of Institutional Equity Research

* Joel Jackson

BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst

* Nelson Ng

RBC Capital Markets, Research Division - Analyst

* Patrick Kenny

National Bank Financial, Inc., Research Division - MD

* Raveel Afzaal

Canaccord Genuity Corp., Research Division - Analyst

* Steven P. Hansen

Raymond James Ltd., Research Division - SVP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Superior Plus 2019 Third Quarter Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Rob Dorran, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

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Rob Dorran, Superior Plus Corp. - VP of IR & Treasurer [2]

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Thank you, Liz. Good morning, everyone, and welcome to Superior Plus' conference call and webcast to review our 2019 third quarter results. Joining me today is Luc Desjardins, President and CEO; Beth Summers, Executive VP and CFO; and Darren Hribar, Senior VP and Chief Legal Officer. Today's call is being webcast, and we encourage listeners to follow along with the supporting presentation, which is also available on our website. For this morning's call, Luc and Beth will begin with their prepared remarks, and then we will open up the line to questions.

Before I turn the call to Luc, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Superior's current expectations, estimates, judgments, projections and risks. Further, some of the information provided refers to non-GAAP measures. Please refer to the third quarter MD&A posted on SEDAR and our website yesterday for further details on forward-looking information and non-GAAP measures. I would encourage listeners to review the MD&A as it includes more detail on the financial information for the third quarter as we won't be going over each financial metric on today's call. This will allow us to move more quickly into the question-and-answer period.

I would now turn the call over to Luc.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [3]

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Well, thanks, Rob, and good morning, everyone. Thanks for joining us this morning for the call. We had a great third quarter with strong results compared to the prior year quarter. Canadian and U.S. Propane distribution businesses have improved results compared to last year, primarily due to improved wholesale propane market fundamentals, effective price management and a lower price environment. We have high synergy from NGL and contribution from our tuck-in completed in quarter 4, 2018 and quarter 2, 2019.

Specialty Chemical (sic) [Specialty Chemicals] EBITDA from operation was hard due to the impact of IFRS 16 and improve sodium chlorate results, offset in part by a modest decrease in chlor-alkali result. Generally, we are less affected by the broader North American chlor-alkali industry trend than some North America chlor-alkali producer due to our regional footprint as well as a more diversified production.

Following the end of the quarter, we closed our second retail propane acquisition in North Carolina and in New Brunswick. So far, 2019, we've made 4 retail propane distribution acquisition for a total of $53 million.

We continue to see a large number of acquisition opportunities, ranging in size in Eastern U.S. and in California. So we have a good pipeline of growth through acquisition as well as organic growth. In the third quarter, we also made excellent progress in our 2019 realized synergy goal related to the NGL acquisition. We've achieved run rate synergy of USD 20 million as of the third quarter, and we expect to exit 2020 with a USD 24 million run rate synergy improvement of the business we've acquired.

Our U.S. propane team has done an incredible job on the integration of NGL, which allowed us to achieve our 2019 goal for run rate synergies. At Superior, we're committed to improving our operation and reducing cost. We've made good progress on the digital rollout strategy and selling close to 30,000 pain sensors in Canada and U.S. in 2019. With the early stage of our rollout in the U.S. and in Canada, we expect to have tank sensor of over 50% of our delivered retail volume this heating season. The tank sensor as well as our integrated customer portals, mySUPERIOR and mySUPERIOR PRO, provide us with a tool to improve our fill rates and deliver efficiency to best-in-class standards and give our customer realtime data, under tank level, usage and expected delivery date.

Our Specialty Chemicals business. Our goal, continue to operate this plant on above average plant utilization rate for the industry. The North American caustic soda-hydrochloric acid markets are weaker than 2018 due to reduced export demand and a decrease in the oil and gas drilling demand, Canada and in the U.S.

We are, however, well positioned to benefit from higher price when this supply demand balance for chlor-alkali products tighten. In June, we announced we were considering the sale of our Specialty Chemicals business. The process is still ongoing. We are unable to provide much of an update at this time, given it is an active and confidential process. We anticipate having something to announce on the process before the year-end. A long way, we are focused on ensuring we do what is best of interest of our shareholder and put Superior at the best position to execute our long-term strategy.

Now I'll turn the call over to Beth to discuss the financial results.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [4]

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Thanks, Luc, and good morning, everyone. The third quarter results were $22.3 million higher than the prior year quarter and on an adjusted EBITDA basis and $12.7 million higher pre-IFRS. Our U.S. Propane business is more seasonal in nature than our Canadian business due to the higher concentration of residential heating customers, so it typically has negative EBITDA in the third quarter.

We had strong results financially with adjusted EBITDA of $48.2 million, which was 86% higher than the prior year quarter, primarily due to increased EBITDA from operations in all Superior's businesses.

The adoption of IRF 16 (sic) [IFRS 16] had a $9.6 million impact on our third quarter results as expenses related to operating leases are now reclassified as a reduction in long-term liabilities. Excluding the impact of IFRS 16, adjusted EBITDA increased 49% compared to the prior year quarter. Adjusted EBITDA for the 9 months year-to-date was $347.8 million, including the impact of IFRS 16 and $320 million pre-IFRS 16 compared to $221.3 million in 2018.

From a debt and leverage perspective, senior debt-to-credit facility EBITDA as at September 30, 2019, was 3.7x, which is consistent with June 30, 2019 and 0.5x lower than leverage as of December 31, 2018. Due to the seasonal nature of our business, leverage ratios are typically lowest in the second and third quarters, it increased during the fourth quarter related to higher working capital requirements.

Turning now to the individual business results. Canadian propane distribution EBITDA from operations for the third quarter was $20.9 million, a $13.2 million increase, primarily due to higher gross profit, realized synergies from the Canwest acquisition and the impact of IFRS 16.

This was partially offset by lower oilfield volumes. Gross profit increased compared to the prior year quarter, primarily due to the wholesale propane market fundamentals, contribution from UPE and sales and marketing initiatives, partially offset by lower other services gross profit. Wholesale propane market fundamentals benefited from the differential between the pricing in Conway and Bellevue compared to Edmonton and Sarnia.

Average unit margins were $0.184 per liter compared to $0.166 per liter in the prior year quarter, primarily due to improved wholesale propane market fundamentals, emergent management initiative. Other services gross profit and oilfield volumes were lower due to reduced drilling and economic activity in Western Canada. Operating expenses were lower than the prior year due to realized synergies from Canwest and a reduction in labor and delivery costs related to the decline in volume, partially offset by increased expenses from UPE.

Canadian propane distribution EBITDA from operations for 2019 is anticipated to be higher than 2018, based on year-to-date results and the impact from wholesale propane market fundamentals, contribution from UPE and incremental synergies from Canwest. This is partially offset by a decrease in retail volumes related to weakness in Western Canada in oilfield and commercial activity. U.S. propane distribution EBITDA from operations for the third quarter was negative $7 million, which was a $4 million improvement from 2018, primarily due to higher average unit margins and contributions from the NGL acquisition and tuck-in acquisition, partially offset by higher operating expenses.

The NGL acquisition closed on July 10, 2018. So the third quarter of 2019 has 10 more days of contribution from NGL, resulting in increased volumes, gross profit and expenses. The average unit margins were $0.319 per liter compared to $0.243 per liter in the prior year quarter, primarily due to lower wholesale propane prices, effective management of pricing in a low commodity price environment and sales and marketing initiatives related to integration of acquisition.

Other services gross profit was consistent with the prior year. Operating expenses were higher due to NGL and the tuck-in, partially offset by realized synergies from NGL. U.S. propane distribution EBITDA from operations for 2019 is anticipated to be higher than 2018 based on year-to-date results and the impact from the full year contribution from NGL and the tuck-in acquisition, incremental synergies from NGL, higher average unit margins related to wholesale propane market fundamentals as well as the impact of adopting IFRS 16.

Turning now to Specialty Chemicals. EBITDA from operations for the third quarter was $39.7 million, an increase of $4.2 million compared to the prior year quarter, driven primarily by the impact of IFRS 16 and higher sodium chlorate gross profit, partially offset by lower chlor-alkali gross profit.

Specialty Chemicals 2019 EBITDA from operations is anticipated to be higher than 2018 best on year-to-date -- based on year-to-date results and the impact of adopting IFRS 16 at an increased sodium chlorate selling prices and sales volume, partially offset by lower chlor-alkali results. In the fourth quarter, we expect consistent-to-modestly weaker caustic soda market fundamentals and weaker hydrochloric acid market fundamentals related to reduced oil and gas demand.

Lastly, the corporate results and the adjusted EBITDA leverage guidance. Corporate costs were modestly higher than the prior year quarter, realized losses on foreign exchange hedging contracts were $1.2 million lower due to the increase in the average foreign exchange hedge rate in the third quarter of 2019. Interest expense was $26.5 million, $4.5 million higher than the prior year quarter due to the increased average debt and effective interest rates as well as the impact from IFRS 16.

Debt was higher due primarily to the tuck-in acquisitions completed in Q4 2018 and Q2 2019. Current cash income taxes were modestly higher than the prior year quarter. We are confirming our 2019 adjusted EBITDA guidance range of $490 million to $530 million, which implies a midpoint of $510 million. The low end of the range accounts for warmer than normal weather, reduced economic activity in Western Canada and further weakness in North American caustic soda and hydrochloric acid market.

The high end of the range accounts for colder than normal weather, consistent wholesale propane market fundamentals, increased drilling activity in Western Canada and improved North American caustic soda and hydrochloric acid markets. We are also confirming our senior debt-to-credit facility EBITDA leverage range for December 31, 2019, of 3.6x to 4x.

Due to the seasonality of our business, leverage typically goes up related to the buildup of working capital in both Q4 and Q1. Leverage could also trend to the higher end of the range, and wholesale propane prices increased significantly, and we complete more tuck-in acquisitions before year-end.

With that, I'd like to turn the call over to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jacob Bout with CIBC.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [2]

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So you're now saying that end of the year for the ERCO sale update. And I know you can't say much, but can you comment on the interest level on the sales, is it better or worse than expected? And are multiples anywhere close to what you're looking for?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [3]

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Yes. I cannot talk about the multiple, but the process was very large, was run by a New York bank because we wanted to -- there's a limited chemical industry greater than Canada. So for the real full process with people interested on a world basis, and it takes time. You have a lot of plants to visit, you have management presentation, you have question and detail on multi-products, and so there's no solid advice to do a deal or do it faster, quicker, but sometimes it takes longer. And we're at the good point now where there's been some good interest. I think we've been disciplined that we'll get through the -- in this situation, we feel more comfortable that it's more short-term now. So we see next quarter and quarter result of these targets. We're getting to that position now where we expect something shortly.

Said that in the past that there's -- which we never deal -- and we've been involved in the banking world, the deals. They always look good until the end, it could be good or it could be more difficult. And for the moment, everything is good, marching on. And we hope that we can announce something in the near future.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [4]

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My second question is on the sustainability of the strong margins that you saw in the quarter. Maybe looking at both propane and chemicals. I'm assuming chemicals' just a better mix. And then I know you commented on the Canadian Propane wholesale side. But if you can talk to the sustainability.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [5]

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Yes, I'll start, and Beth can add some other details. So on the U.S. side, very sustainable, very solid. We've bought a company that from an intelligence pricing, from segmentation, from marketing approach, we bring a much better sophisticated approach that gives us better margin, which anticipated at the $20 million synergy, so we feel very confident there. Canadian Propane business has been the story for many, many years. We're always able to tweak it somewhat, somehow. There's been some positive on the wholesale side. And I'll ask Beth to give you additional colors on that.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [6]

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Yes. I think from a propane perspective, we did have strong, as we mentioned, wholesale market fundamentals. It is -- that is a volatile area. If you think about last year, we would have been almost looking at differentials from a trough perspective, where this year, from our perspective, it's basically a peak. So from that perspective, as we look going forward, it is volatile, and things could change quickly with those market fundamentals.

From an overall perspective, if you want to think about the U.S. business from a margin. We still look at those margins being roughly in the range of USD 0.25, which is somewhere between CAD 0.30 to CAD 0.35, and we think that's a good number going forward.

From the Canadian Propane perspective. Our view, where we're sitting a little higher this quarter than we would have been on a year-over-year basis.

From a whole year perspective, $0.14 to $0.17 is a good range. If you want to think about Q4 based on what we're seeing, where both Q4 and Q1 tend to have higher margins. Think of it sort of in a $0.15 to $0.16 set range overall going forward. And on the chemicals side, as you would have seen, there was some weakness on the chlor-alkali side. And again, that tends to be volatile. So from a perspective going forward, that's when -- where our view is, we would expect going forward experiencing volatility.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [7]

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Okay. And then -- this -- so the tank sensor program, the digital strategy in propane, are you seeing much of a margin lift from that?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [8]

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It really is now -- and I have to add to that all the portal work and information that we have in the data that our customer their self-have. It's not just on the tank that we have the measure of propane in the tank. It really is extraordinary in many ways. It brings us to fill rate improvement so more efficiency and cost to deliver and service. It brings us less attrition. A lot more -- we always have attrition and gain but [more like the] telecom industry. The attrition are cut in half. And why they cut in half is customer trust now the numbers. And now we can make [up] information. We can have the data on the tank. So it's kind of a low-key fact, that good story. We're very aggressive. We're covering over 50% of our volume in Canada. And now during the summer, we're installing a lot more in the States and taking a break in the winter. It's all about servicing customer and filling those tanks. So a really good story, and I know we currently haven't been as fair for the first few years, that probably was [rated] to us.

We would like the idea of keeping it from our competitors. But right now, it's [the best] we're there and we're -- it's a good story and we're going to keep going at it.

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Operator [9]

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Our next question comes from Nelson Ng with RBC Capital Markets.

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Nelson Ng, RBC Capital Markets, Research Division - Analyst [10]

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Just a quick question given that you'll -- you're looking to provide a sales updates by the end of this year. I think last quarter, you mentioned the capacity expansion at Buckingham and Valdosta. I was just checking to see if those -- like the capital program has begun on those 2 projects. I think Valdosta's probably next year but Buckingham was supposed to be this year?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [11]

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Yes, that's our schedule. To be clear, the scheduled plant is closed, done, behind us. The Québec plant is -- the work's going on the electricity efficiency as well as forming a large (inaudible) plant. And [well, that's our 2-point] (inaudible). And all of that, we continue to run the company like we're going to own this forever. So not only State investment to improve the business, we never stopped doing that. That's why our capital of the business, we were positive the past years. (inaudible) We have a good business with good management talent, and we don't want to shortchange that business because we're looking at selling it. So those are the 3 programs in works, and parts of it is already done and behind us.

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Nelson Ng, RBC Capital Markets, Research Division - Analyst [12]

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Then my next question relates to the small tuck-in acquisitions last month. Given the small size, like were they done at the lower end of your kind of typical acquisition multiple range?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [13]

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Yes. They're bringing somewhere in the -- some of them bring good synergies, and we don't overpay. We've been disciplined in acquisition. We did pay a bit more for the NGL and Canwest because we have tons of opportunity which we have proven with the $24 million in the synergy U.S. It's giving us the platform to build bigger and better. We have a pipeline that's really robust. Timing has been -- I think there's more coming versus the past 9 to 12 months because there's a good one in works.

We don't overpay. We understand shareholder value. We don't want to sell anything too cheap and if we don't get their value [which is a concern]. And we don't want to be paying too much for business and the net-net. Those value are very good and good synergy and good net after execution. And our promoters' up a little bit by telling you something, I hope you all know, is -- from an execution point of view. If you look at the 9 years history, it's probably in the best-of-class, buying and integrating and doing their job.

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Nelson Ng, RBC Capital Markets, Research Division - Analyst [14]

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Okay. And then just one last question. I guess, given that you do have a lot of seasonal workers on the propane side. Could you just comment on the -- like one? I'm just wondering whether the tight U.S. labor market has impacted your business at all. And if you're seeing any wage pressures there?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [15]

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No. And it's funny because we had that discussion with our Board yesterday. One of the Board member asked a question, which "Since when do you suddenly..." and it was a great question because we hear it everywhere. I think what we're living through is we have a -- it seems to me that when you have a propane business, you stay in the propane business [you pulling] management or upgraders and technician. And they really drive like trucks, so it's not a very hard-lifting job, it's not long distance, and you don't come home at night, you do your day and you go home at night.

And you're part of the team. And every day, there's a [hub] in the morning and they meet. So we really don't see what we hear about the truck drivers.

And then in the summertime, we started to apply the same business model we have in Canada, reducing labor force for the months of the summer. And we're somewhat surprised a lot of the -- and we keep their benefits when we do that in the summer and the very positive feedback from employee say, "I'm really working here for my benefit a lot. And when it comes to slowing down in the summer, makes sense, and I'm good with that". So really not an issue for us, and we're not indicative because it's not a hard truck-driving job versus others.

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Operator [16]

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Our next question comes from David Newman with Desjardins.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [17]

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Not to overplay it but just on the sales process, it's November 14, and I would assume if you announced something toward the end of the year, that it would be more likely, like a 2020 close. Does that kind of run into the management bandwidth, I guess, during the busy period? And I guess the offset would be -- it's more likely than not that, generally, the other propane small players wouldn't sell until after the season anyways, correct?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [18]

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Talking about the M&A and as far as tuck-in, there's -- I think you're right, usually, they stop and they -- all winter. But right now, they haven't. So we have couple of good interested party that we're working on with -- and I think the next few months would be good.

On the process for the chemicals side, I'm not sure I understood your question because it doesn't affect all the work from a month-to-month basis, maybe Beth you have...

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [19]

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Yes. I think maybe the way to think about it on a -- having very different businesses. There's different teams as we work through the detail of deals, et cetera, that we'd be working on the various deals. And if you want to take it from a busy season perspective, et cetera. Chemicals is very stable throughout the year, yes, stable operation. So when you think about the individuals involved in those types of processes. I'm going to say it's no harder or easier in -- going in this period of time.

And for the others involved, which would be more from a corporate perspective. The reality is we do what we need to do to get everything done.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [20]

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And not to nail it down but does it look like a 2020 close to you guys? If it happens.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [21]

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Darren, you want to take that one?

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Darren Bart Hribar, Superior Plus Corp. - Senior VP & Chief Legal Officer [22]

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Yes, I think it's -- obviously, given where we are in the process. We have mentioned that we hope to announce something before the end of the year, talking about closing at this point is just a little bit premature.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [23]

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Okay. And just on ongoing operations, the fundamentals here, obviously, quite a good quarter. And that's -- from the R margin expansion and things like that, margin management. Of the $0.184 in Canada and the $0.319 in the U.S., I would assume it's a couple of pennies on each side that you're able to extract out of that?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [24]

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Yes, that's a good way of thinking about it.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [25]

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Okay. And part of it is not just the R, but is it not also a case where -- when you have a low wholesale propane environment, you've got some stickiness on the retail side, that's the margin and management there, that's what you're alluding to? And does that look like it could continue into the fourth quarter?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [26]

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Yes, I think maybe think about it in different pieces. In a lower propane environment, as we talked before, I mean, I'll take it back up to our fundamental business model. And our fundamental business model is that our margins get generated by the act of the distribution of the propane. So that's the key driver. For residential customers, there are instances where when propane pricing are low around the edges, we can pick up some incremental margin.

For that, maybe the best way to think about it is between both Canada and the U.S., sort of in the range when you have propane pricing as low as it is today, probably has an impact in the range of about $5 million on that both U.S. and Canada combined.

The other piece is when it comes to sort of the dislocation of the market, which is the differential impact. That there -- whether propane pricing is low or high. You can still have, I'm going to say, larger or smaller opportunities in that differential.

Our -- there's also arbitrage opportunities that exist as well. But again, that's a difference of prices, not necessarily lower prices, where we have congestion points, et cetera. So the first one doesn't really -- isn't reflected because of wholesale market fundamentals necessarily. I'm going to say that's a little bit more operational and pricing on a residential variable customers.

I'm not sure if that helps, but it's certainly (inaudible) different pieces.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [27]

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That's what I thought it was, but I just want to make sure that I was on the right track. And if you look at the chemicals markets in general. And I know you're very buffered by being in land and et cetera. But do you think the caustic weakness could creep up river at some point here? And as well as hydrochloric acid markets, you're pretty diversified, but you're also very insulated overall. But how are you thinking about that?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [28]

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I mean from our perspective, that chlor-alkali market can definitely be volatile. Barge traffic in the winter from the Gulf Coast certainly can have an impact but we'll decrease some of that floating up towards our market. One of the reasons why our -- we didn't change or narrow our guidance range is because of both the volatility that we could potentially see, and that exists in the chlor-alkali market as well as the volatility, frankly, on propane, fundamental markets and weather, et cetera.

But that is one of the reasons why our range is a little higher at this point than it might otherwise be.

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Operator [29]

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Our next question comes from Patrick Kenny with National Bank Financial.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [30]

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Beth, I think you just answered my first question here on the EBITDA guidance range being unchanged. You noted some of the potential offsetting factors. But just to maybe zone in on what looks to be a strong crop drying season down in the Midwest right now. Can you just maybe provide a bit more color on the wholesale opportunities that your team might be seeing or any logistical challenges there?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [31]

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Yes. So from our perspective with the crop drying, et cetera, it's quite clear that it can make supplies tighter, our demand stronger from that perspective. So we're really looking at it and say, number one, the most important thing from our perspective to ensure that we have security of supply. So our team is very focused on ensuring that, that occurs. Certainly, historically, with this strong crop dry and then moving into potentially very cold weather, which happened in the polar vortex. There were concerns around supply and security of supply. We believe that the market itself is much better prepared now for this. So -- and we are certainly focused in ensuring that we have security and supply. We've seen different pieces, you are correct, it does sometimes provide arbitrage opportunities, which our team will look at and where we can take advantage of that, we will take advantage of that.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [32]

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And then, I guess, as a follow-up, the other tailwinds don't materialize -- or sorry, the other headwinds don't materialize. And the stars do align here with weather and logistics for the propane business, and it hits it out of the park this winter. Could that potentially provide enough excess cash flow to accelerate your debt repayments and perhaps cause you to rethink selling chemicals altogether? Or do you simply have a price in mind for the business? And you don't see that being influenced by what goes on within propane.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [33]

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I'll do the chemical sales part, and Beth will do the other part. The -- strategically, we hope to sell the chemical, and we decide to sell the chemical for good reason. In Canada, with Canwest and what we've done with the bid-based business, you look at the history. If you look at NGL, which we've proven by the fourth largest distributor in the State. Our business model, every time we touch a propane company, we're improved at 25%. What do we do with ton of that, it's like really special. When you think of being an industry that's somewhat mature, that you have such a business model that will continue to improve. We have additional improvement, project and works that are really quite digital and data information to organize work even at the next level of our efficiency. But when you have developed a business model like that, that is -- and the industry really, really the best and so much more efficient. You got to do a ton of that. So we said strategically, by the good [potential] business, helped chlorate the sodium chlorite, and you have the volatility that was discussed with chlor-alkali, less for us because over regional play. It's extraordinaire mid-, long-term to say, "Let's get our cash, let's have less debt, let's do more of that, let's do more of that." Every time we buy one, we improve it overnight.

1 year, 18 months, $26 million, $24 million sales and improvement in NGL. So we got to deal with that. Now from selling, not selling, we want to sell it, and we're marching up to sell it, and we hope to have a communication in that regard in a short period of time.

We're also very disciplined. And you all been -- everyone of you that been in M&A understand the last mile is very critical and very stressful, I think would say because the buyer could decide to play a little game at the end, even though they came in and they were factual about their value and how they would acquire the business. It happened to us in the CPD, and I threw them out, and we sold it at $100 million more later.

I hope we don't have to do that. It's not planned to we go that way, but we have to be cautious of getting to the last game of the deal, and we hope -- it's working well with all that happens. But we're not afraid to face it if somebody wants to play game at the end.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [34]

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Yes. The only thing that I will add in addition for the 2 items that you were fundamentally flagging, that improved market fundamentals in colder weather. If you want to think about it in an overall context. It's probably -- you're looking at $10 million to $20 million. So it's not really as impactful on leverage overall, that is within [our] strategic decisions, one way to look at [that].

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Operator [35]

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Our next question comes from Joel Jackson with BMO Capital Markets.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [36]

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Beginning with chlorates. Have you started getting into some discussions for some renewals on contracts for 2020? Maybe you could talk about what chlorite pricing might look like into next year?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [37]

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Yes, we have. And it's a good year for us because contract are 1 to 2 years, [over our] 20, 30 years, any of them. So this year, we only have about 20% of renew. And so far, what we see is we can -- our biggest cost by far are [our] cost of electricity and energy. And by -- what we see right now, the capacity to be able to cover our cost increase. So we're in a good position. The market is 95% capacity utilization, the asset's been in the story, since I've been here anyway and closing Saskatoon and the larger low-cost plant in Québec and Belfast, that is a good move. So not good position in chlorate.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [38]

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So -- sorry, so what you're seeing so far is the price increases you're getting are matching the electricity and other inflation costs?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [39]

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Yes. Yes.

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Joel Jackson, BMO Capital Markets Equity Research - Director of Fertilizer Research & Analyst [40]

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Okay. And then just a follow-up on chlorate, but also, I guess, Specialty Chem sales. Maybe a 2-parter here. You've said in the past a couple of times, you would not consider breaking up the business to sell plant by plant or commodity by commodity. So the first part would be, I assume that, that's still the case. And then when you look at the potential buyers of this asset, considering some of the issues on chlorate concentration that's happened with the Canexus deal. Is it fair to say that a current chlorate producer is not one of the likely acquirers here?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [41]

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So I have Darren in the room, I'll ask him to answer that.

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Darren Bart Hribar, Superior Plus Corp. - Senior VP & Chief Legal Officer [42]

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Sure. Obviously, I understand that the process is confidential, so we can't really talk about potential buyers at this point.

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Operator [43]

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(Operator Instructions) Our next question comes from the line of Elias Foscolos with Industrial Alliance.

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Elias A. Foscolos, Industrial Alliance Securities Inc., Research Division - Equity Research Analyst [44]

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I have one question as almost everything else has been asked. Last year at this time -- good questions. Last year, at this time, you introduced 2019 EBITDA guidance. I'm wondering, not that it's super critical, but if we can expect that and what the timing might be?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [45]

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Yes. Our intention would be to provide 2020 guidance as we communicate the results of 2019, so in February. So as we have the Q4 results to provide guidance going forward. Our view is it will be more meaningful because we'll have a line of sight on the chemicals process. In addition to that, just to flag, our intention going forward would be to provide guidance along with the Q4 results, which is similar to our peers.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [46]

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Very good question.

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Operator [47]

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Our next question comes from the line of Raveel Afzaal with Canaccord.

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Raveel Afzaal, Canaccord Genuity Corp., Research Division - Analyst [48]

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Thank you for hosting the call. Can you speak a little bit about the caustic soda inventory levels that you guys are seeing right now? Are they -- have they started to come down, or are they still pretty stable?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [49]

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[I was thinking about that]. I don't -- you mean for us or for the industry?

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Raveel Afzaal, Canaccord Genuity Corp., Research Division - Analyst [50]

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For the industry.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [51]

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Okay.

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [52]

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Yes. From our perspective, certainly, caustic soda, with some of the changes in the market, is currently well supplied. Fundamentally, with Alunorte, only being at 75% now. Where I think the industry would have thought it would already be at 100%. And now the forecast is that Alunorte won't be at 100% until 2020, Q1. So from that perspective, you still have well supplied. So as a result of that, I mean, there has been some headwind and pressure on caustic's pricing. From a volume perspective, it's easy for us. We've seen that it's been very -- it's basically been flat.

From that perspective, again, identifying that we aren't necessarily always been impacted from some of these changes because the regional nature of our business.

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Raveel Afzaal, Canaccord Genuity Corp., Research Division - Analyst [53]

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Makes sense. And then I know it's too early to call the weather with respect to the propane division. But can you speak about how the weather has been so far and what the forecasts are for the remainder of the quarter?

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [54]

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Yes. We don't give forward number for quarter, as you know. But thank you for that question. It's very old.

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Operator [55]

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Our next question comes from Steve Hansen with Raymond James.

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Steven P. Hansen, Raymond James Ltd., Research Division - SVP [56]

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Sorry, I jumped in a bit late. I apologize. Your [airport] security lineup was frustrating. But (inaudible) at the end here, I caught your early comments about the process -- the sales process being pushed out perhaps a little bit on announcement. But does that disrupt or change any of your ongoing M&A discussions you might be having on the other side as you contemplate to redeploying those proceeds? And just as a follow-up to that is maybe just describe how that pipeline currently looks at the moment.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [57]

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Pipeline's very good and the -- it's not changing our results you see there. A lot of the deals are small, there's some medium deal that takes longer and somebody asked earlier, it's true that a good midsize deal would not look at it this winter. We'll look at the summer to do it in the event of sale. So even though we do have a little bit more potential acquisition in the 3 to 4 months to come, which is usually not the case. They're all kind of -- they're not large, not the midsized one. So from an M&A, we're not stopping. We're communicating. I'm sure a good seller could understand too if we say, "Listen, give us an extra month because we would like to finish with our chemical deals". I haven't changed our game at all in that respect. And there was a larger deal we probably would consider that might bring a different situation, but it's not the case for the moment.

Well, Beth, anything comes to your mind -- that regard?

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Beth Summers, Superior Plus Corp. - Executive VP & CFO [58]

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No, I don't have anything to add on top of that.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [59]

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Okay. All right. Thank you.

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Operator [60]

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And I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Desjardins for closing remarks.

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Luc Desjardins, Superior Plus Corp. - President, CEO & Director [61]

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Okay. So I want to thank all the employees and management for the Superior third quarter. It's a great job, and I [share] you additional thank to our ERCO team that has worked so hard doing their job day-to-day and working on this process that's very demanding and follows the questions and a lot of work. And also to [have a] lot of people following us. I think more than in the past. So thank you all for participating and wish you all a good holiday season. It's early, but [maybe we're] the first to say it. So have a good one. And we're going to keep doing our best and making a good enterprise for all our shareholders and everybody following us. So thank you again.

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Operator [62]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.