Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Superior Plus Corp (SUUIF, Financial) achieved growth in its Canadian propane division compared to Q2 2023, driven by expanding its customer base and disciplined cost and margin management.
- The US propane division managed to counter the impact of unseasonably warm weather by adding new customers and capitalizing on cost reduction and productivity opportunities.
- Certarus delivered a 15% increase in volumes, reinforcing its market-leading position despite regional pricing pressure.
- The acquisition of Certarus has positioned Superior Plus Corp (SUUIF) as the largest player in over-the-road CNG and RNG distribution, commanding nearly half of the industry's fleet.
- Superior Plus Corp (SUUIF) confirmed its adjusted EBITDA guidance of approximately $500 million for 2024, indicating confidence in its financial outlook.
Negative Points
- Superior Plus Corp (SUUIF) reported a net loss of $45.3 million for the second quarter, compared to a net loss of $29.2 million in the prior year quarter.
- The US propane business saw a 28% decrease in adjusted EBITDA compared to the prior year quarter, driven by lower sales volumes due to warmer weather and higher tank levels.
- Certarus did not meet EBITDA expectations for the quarter, facing pressure on pricing and elevated operating costs.
- The wholesale business experienced a decrease in adjusted EBITDA due to lower sales volumes from warmer weather.
- Superior Plus Corp (SUUIF) acknowledged increased competition in the West Texas region, impacting pricing and market dynamics.
Q & A Highlights
Q: Thanks and good morning. Maybe just start off with your guidance. You mentioned you're maintaining your 5% growth, $500 million, and you're suggesting a very strong second half. Maybe just walk us through maybe a bit more detailed in terms of segments, Canada propane, US propane, and Certarus, and are there any bigger operational initiatives kind of driving the second half strength worth highlighting?
A: Hey, Gary, it's Allan. Let me start and then Grier will finish. Yes, we're maintaining guidance. I mean, the short answer is yes. We've been working really hard, as you know, on looking at opportunities in the propane business, and we are very optimistic. We continue to add new customers and to improve the efficiency of the business. And it's less about cost reduction, quite frankly, and more about the effectiveness of how we're operating the business and really working at managing retention better, managing pricing, and working really hard at acquiring new customers. So, short answer is we see more opportunities coming into the latter half of the year, but I want to let Grier talk about sort of a little bit of a ladder on how we get from here to there.
Grier Colter: Yes, sure. So, our target of 500, obviously we'll see a little bit of headwind on the Certarus result. So say, I think if we look at the second quarter, this business missed by kind of 7 million-ish, right? We don't think Q2 will be that large a miss, but we're going to see some of the same pressures, as I said, some of the things temporary, some of the things a little bit more longer term for us to manage once we get into Q4. The winter work returns and the economics and the utilization, it's a much different picture. So overall for the year, we think Certarus is probably going to end up kind of $10 million or so off where we thought. But we think through a couple of corporate cost initiatives and some of the stuff that Allan was talking about in the propane business, just initiatives that we see really primarily into 2025, that we might be able to nip out a little bit in 2024 and get a little bit of benefit. And when you kind of bake that all together, we see us getting very close to the 500 and that's why we've kept with that number.
Q: Okay, great. No, thanks for those. And then maybe second question specifically on Certarus, you mentioned the increased competition dynamics. I see the per MSU economics is down year-over-year and also versus 1Q. Can you parse out, how much of your, let's call it 760 average MSUs were underutilized in the quarter? I'm trying to get a sense, if we exclude those, how much better with the unit economics look year-over-year?
A: Yes, I think, Gary, it's less of an underutilized MSU situation. I think, the team did a great job to be flowing gas. And if you look at the metrics, the flow actually was as high or higher. We actually had more flow per MSU than we would have in the prior year. So this was not about idle capacity and having MSUs not in service. This was a question of being competitive and looking at the market dynamics and making sure that these MSUs were in use. So of the MIS, as I say, there are different components and some is temporary. But if we're talking about the competition part of this, it's a very high percentage of this impact was the pricing dynamic versus utilization. So they were highly utilized.
Q: Got it. Okay. And Grier, while I have you the quick numbers question. You guys used to disclose and adjust the operating cash flow figure, which backs up some of the noise in cash flow. Maybe share some of your views internally when you look at free cash flow, what do you look at and what's the current annualized run rate, free cash flow in the business today and payout ratio against your current dividends?
A: Yes, like for sure, Gary, I mean, when you look at the EBITDA and you look at our growth and maintenance capital, the interest, the dividend, you can see, it's relatively neutral right now. And as we continue to talk about our plans for the business, whether we're talking propane or Certarus, I think it will become clearer to the market what our plan is. But we see growth. We see our ability to improve the cash flow picture and make it more of a positive scenario, which is how we get our head around the fact that these are all supportable. We've got in our plans, we see sufficient cash flows to support the growth of the business through CapEx, support our delivering plan, as I said in my remarks, it's super important for us to get to a more sensible leverage target by the end of 2026 and obviously support the dividend. So we see the cash flow picture that supports that, but as I say, like as we continue to unveil our plans for the future and our confidence in growth for the businesses, I think it will become clearer to the market.
Q: Hey, good morning everyone. First question is just around the competitive pressures. Is it possible to speak to how much is the function of all the new MSUs in the market versus the downturn in oil and gas? And I guess what I'm really trying to get at is just what gives you the confidence that you're not going to have significant competitive pressure in the winter heating season as well, because there does seem to be a lot of new MSUs in the marketplace?
A: Well, it's really, I mean, that's a really tough one, but what I'd say, hey, Daryl, by the way, sorry, it's Allan. When you think about the MSUs in the market, a lot of our competition is based in West Texas, and that's really their home market and their focus area. So number one, you've got a higher concentration, and a lot of these companies, the MSU business is an adjacency for them, or a smaller investment. So if you think about their size relative to us, a lot of these competitors are quite small and very, very focused in this market. So, the downturn in terms of activity, especially in Texas this time maybe coupled with the proximity of a lot of the competition has put some downward pressure on pricing. But I think it's very difficult to extrapolate that to the rest of our segments and the other, and especially in the busy winter seasons. So I wouldn't necessarily make that leap.
Q: Okay. I know it's pretty early still to be talking 2025, but when you look at that period, does this cause you to reassess the growth rates for Certarus, or do you see enough, with time, enough end market development outside of oil and gas that you could still sort of continue the growth rates at a high return metrics?
AFor the complete transcript of the earnings call, please refer to the full earnings call transcript.
