Superior Plus Corp. Announces 2018 Third Quarter Results, Confirms 2018 Financial Outlook and Introduces 2019 Adjusted EBITDA Guidance

TORONTO–(BUSINESS WIRE)–Superior Plus Corp. (“Superior”) (TSX: SPB) announced today its
financial and operating results for the third quarter ended September
30, 2018. All financial figures are expressed in Canadian dollars.

“The third quarter of 2018 was transformational for Superior, having
closed the largest acquisition in the company’s history in July,
significantly expanding the U.S. retail propane business. We also
announced three more acquisitions since our second quarter results, and
continue to gain momentum on achieving our Evolution 2020 initiatives,”
said Luc Desjardins, Superior’s President and Chief Executive Officer.

Evolution 2020 and Strategy Highlights

  • Superior confirms guidance of 2018 Adjusted EBITDA to be in the range
    of $345 million to $375 million, and the Adjusted Operating Cash Flow
    (“AOCF”) per share before transaction costs financial outlook is $1.75
    to $1.95. Superior is introducing its 2019 Adjusted EBITDA guidance
    range of $445 million to $495 million, a 31% increase compared to the
    midpoint of the 2018 Adjusted EBITDA guidance. See “2018 & 2019
    Financial Outlook and Adjusted EBITDA Guidance” for additional details.
  • On July 10, 2018, the company completed the transformative acquisition
    of NGL Propane (“NGL”) for total consideration of approximately $1.2
    billion. This acquisition provides an established platform to execute
    on further expansion opportunities in the U.S. with an increased
    presence throughout the Eastern U.S.
  • Superior anticipates it will exceed the previous target of achieving
    $15.0 million in run-rate synergies related to the Canwest acquisition
    exiting 2018. The remaining run-rate synergies of approximately $5.0
    million are anticipated to be achieved in 2019 by the end of the
    second quarter to achieve the full run-rate synergies of $20.0
    million. The consolidation and integration of Canwest and Superior
    Propane field operations was completed in six waves in 2018, with the
    final wave completed in September.
  • U.S. propane distribution began NGL integration activities during the
    third quarter and anticipates achieving $12.5 million in realized
    synergies in 2019. The synergies are anticipated to come primarily
    from operational and procurement cost-savings, effective supply chain
    management as well as improving margin through merging the sales and
    marketing teams and sharing best practices.
  • On October 2, 2018, Superior closed the acquisition of all of the
    issued and outstanding shares of United Liquid Gas Company Inc., which
    operates under the trade name United Pacific Energy an independent
    wholesale natural gas liquid distributor in California. This
    acquisition adds significant sales volumes to the wholesale natural
    gas liquid portfolio, diversifies our customer and geographical base
    and includes an attractive group of assets with coastal exposure which
    is integral in the continued expansion of the wholesale business along
    the western coast of the U.S.

Business and Financial Highlights

  • AOCF per share before transaction and other costs during the third
    quarter was $0.01, 91% lower than the prior year quarter primarily due
    to an increase in interest expense, the impact from the increase in
    the weighted average shares outstanding and a decrease in Adjusted
    EBITDA. The increase in interest expense and weighted average shares
    outstanding increased as a result of the debt and equity financing for
    the NGL transaction. Net cash flows from operating activities in the
    third quarter were $11.6 million lower than the prior year quarter
    primarily due to an increase in interest paid, partially offset by an
    increase in cash generated from operations.
  • Superior achieved third quarter Adjusted EBITDA of $25.9 million, a
    $3.1 million or 11% decrease over the prior year quarter primarily due
    to lower Energy Distribution EBITDA from operations and higher
    realized losses on foreign currency hedging contracts, partially
    offset by higher Specialty Chemicals EBITDA from operations and lower
    corporate costs.
  • Superior generated a net loss of $39.8 million in the third quarter,
    which was $85.0 million lower than the net loss of $124.8 million in
    the prior year quarter. The improvement was primarily due to a
    reduction of income tax expense and increased gross profit, offset in
    part by an increase in selling, distribution and administrative costs.
    Income tax expense decreased $129.5 million compared to the prior year
    quarter as the prior year included a deferred income tax expense of
    $119.4 million related to the settlement with the CRA regarding
    Superior’s corporate conversion, which occurred on December 31, 2008.
    Gross profit increased $36.1 million primarily due to the contribution
    from NGL, Canwest and tuck-in acquisitions as well as improved
    chlor-alkali results. Selling, Distribution and Administrative costs
    increased $61.7 million primarily due to the incremental expenses from
    NGL, Canwest and tuck-in acquisitions.
  • Specialty Chemicals EBITDA from operations for the third quarter was
    $35.5 million, an increase of $5.9 million or 20% compared to the
    prior year quarter primarily due to higher chlor-alkali sales prices
    and modestly higher sales volumes, and higher sodium chlorite results
    related to strong demand from the oil and gas sector, partially offset
    by lower sodium chlorate gross profits. Sodium chlorate gross profits
    decreased primarily due to higher electricity costs and lower sales
    volumes.
  • During the third quarter, Energy Distribution realized negative EBITDA
    from operations of $3.3 million, a decrease of $3.5 million compared
    to the prior year quarter primarily due to the continued weak
    wholesale natural gas liquid market fundamentals, including weak
    butane prices, as well as the impact of the divested U.S. wholesale
    assets during the second quarter. Energy Distribution gross profits
    were higher due to the contribution of NGL, partially offset by the
    weaker wholesale market fundamentals as well as the impact of the
    divested U.S. wholesale and retail distillate assets during the second
    quarter. Energy Distribution operating expenses were higher primarily
    due to the incremental expenses from NGL and Canwest, partially offset
    by the impact from the divested wholesale business and realized
    synergies. The third quarter generally provides the lowest
    contribution for Energy Distribution due to the seasonality of
    heating-related and oilfield demand.
  • On September 21, 2018, Superior completed the acquisition of all of
    the propane distribution and other assets of Porco Energy Corp., an
    independent propane distributor in New York serving residential and
    commercial customers.
  • On November 1, 2018, Superior closed the acquisition of all of the
    propane distribution and other assets of Musco Fuel & Propane LLP, an
    independent propane distributor in Connecticut serving residential and
    commercial customers.
  • On September 27, 2018, Superior announced an At-the-Market (“ATM”)
    equity financing program, which allows Superior to sell common shares
    directly from treasury. The ATM equity program enables Superior to
    issue smaller amounts of common shares at a lower cost than
    traditional equity offerings, without a discount and at prevailing
    trading prices. The ATM equity program was put in place as Superior
    maintains a robust pipeline of tuck-in acquisition opportunities, and
    the program serves as a low-cost, flexible funding alternative for
    these smaller acquisitions. During the third quarter of 2018, Superior
    issued 29,300 common shares for net proceeds of $0.4 million under the
    ATM program.
Financial Overview
Three Months Ended Nine Months Ended
September 30 September 30
(millions of dollars, except per share amounts) 2018 2017 2018 2017
Revenue 481.7 465.5 1,839.7 1,616.1
Gross Profit 169.7 133.6 618.6 497.3
Net earnings (loss) (39.8) (124.8) 14.3 (73.2)
Net earnings (loss) per share, basic and diluted $ (0.23) $ (0.87) $ 0.09 $ (0.51)
EBITDA from operations (1) 32.2 29.8 240.5 190.0
Adjusted EBITDA (1) 25.9 29.0 221.3 188.5
Cash flows from (used in) operating activities (16.5) (4.9) 221.4 123.9
Cash flows from (used in) operating activities per share – basic (2) $ (0.10) $ (0.03) $ 1.45 $ 0.87
Cash flows from (used in) operating activities per share – diluted (2) $ (0.10) $ (0.03) $ 1.45 $ 0.87
AOCF before transaction and other costs (1)(3) 2.2 15.0 169.6 151.8
AOCF before transaction and other costs per share – basic (1)(2)(3) $ 0.01 $ 0.11 $ $1.11 $ 1.06
AOCF before transaction and other costs per share –diluted (1)(2)(3) $ 0.01 $ 0.11 $ $1.11 $ 1.05
AOCF (1) (13.4) (4.5) $137.6 123.4
AOCF per share– basic and diluted (1)(2) $ (0.08) $ (0.03) $ 0.90 $ 0.86
Cash dividends declared 31.5 25.7 82.9 77.1
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.54 $ 0.54

(1) EBITDA from operations, Adjusted EBITDA and AOCF are non-GAAP
measures. Refer to “Non-GAAP Financial Measures” for further details and
the MD&A for reconciliations.

(2) The weighted average number of shares outstanding for the three and
nine months ended September 30, 2018 is 171.4 million and 152.5 million,
respectively (three and nine months ended September 30, 2017 – 142.8
million). The dilutive weighted average number of shares outstanding for
the three and nine months ended September 30, 2018 is 171.4 million and
152.5 million respectively (three and nine months ended September 30,
2017 – 148.6 million shares).

(3) Transaction and other costs for the three and nine months ended
September 30, 2018 and 2017 are related to acquisition activities and
integration of acquisitions. See “Transaction and Other Costs” for
further details.

Segmented Information

Three Months Ended Nine Months Ended
September 30 September 30
(millions of dollars) 2018 2017 2018 2017
EBITDA from operations(1)
Energy Distribution (3.3) 0.2 136.2 99.1
Specialty Chemicals 35.5 29.6 104.3 90.9
32.2 29.8 240.5 190.0

(1) See “Non-GAAP Financial Measures”.

2018 & 2019 Financial Outlook and Adjusted EBITDA Guidance

  • Superior expects 2018 Adjusted EBITDA and AOCF per share guidance
    consistent with the financial outlook provided at the end of the
    second quarter of 2018. The 2018 Adjusted EBITDA range is $345 million
    to $375 million, and the AOCF per share before transaction costs
    financial outlook is $1.75 to $1.95.
  • Superior is introducing its 2019 Adjusted EBITDA guidance range of
    $445 million to $495 million, a 31% increase compared to the midpoint
    of the 2018 Adjusted EBITDA guidance. Superior’s key assumptions
    related to the 2019 Adjusted EBITDA guidance are:

    • EBITDA from operations for Energy Distribution is anticipated to
      be higher than 2018 primarily due to full year results from NGL as
      well as the incremental contribution from the six tuck-in
      acquisitions completed in 2018. The increase also reflects
      approximately $5.0 million in incremental synergies related to
      Canwest and $12.5 million related to NGL to be realized in 2019.
      Supply market fundamentals in the Canadian propane distribution
      business are anticipated to be consistent with 2018. Average
      weather, as measured by degree days for 2019 is anticipated to be
      consistent with the five-year average.
    • EBITDA from operations for Specialty Chemicals is anticipated to
      be consistent with 2018 as an increase in chlor-alkali and sodium
      chlorite gross profit is expected to be offset by a decrease in
      sodium chlorate gross profit and a modest increase in operating
      expenses. Chlor-alkali gross profit is anticipated to be higher
      than 2018 due to continued improvements in hydrochloric acid
      pricing driven by robust oil and gas demand, as well as modest
      improvements in caustic soda pricing. Sodium chlorite gross profit
      is anticipated to be higher than 2018 on continued strong pricing
      and demand driven by the oil and gas sector, as well as customer
      mix. Sodium chlorate gross profit is anticipated to be lower than
      2018 as modest improvements in sales prices are expected to be
      more than offset by increases in electricity mill rates and
      transport costs as well as the impact of a weaker U.S. dollar
      compared to 2018.

Debt Management Update

Superior remains focused on managing both its total debt and its total
debt to Adjusted EBITDA ratio. Superior’s total debt to Adjusted EBITDA
ratio for the trailing twelve months (TTM) was 3.7x as at September 30,
2018, compared to 3.3x at December 31, 2017. The debt levels and total
leverage ratio as at September 30, 2018 were higher than December 31,
2017, due to increased borrowings on the credit facilities and unsecured
notes associated with the NGL and other tuck-in acquisitions. The TTM
Adjusted EBITDA includes pro forma Adjusted EBITDA for acquisitions
completed in 2017 and 2018.

The total debt to Adjusted EBITDA ratio is currently above the long-term
target of 3.0x. Superior anticipates the total debt to Adjusted EBITDA
ratio to be in the range of 3.8x to 4.2x as at December 31, 2018
primarily due to acquisitions completed and increased working capital
related to the seasonality of the Energy Distribution segment. Superior
anticipates total debt to Adjusted EBITDA will be in the range of 3.6x
to 4.0x as at December 31, 2019 as cash generated from operations is
used to repay debt.

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 nine
months ended September 30, 2018 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.

2018 Third Quarter Conference Call

Superior will be conducting a conference call and webcast for investors,
analysts, brokers and media representatives to discuss the 2018 Third
Quarter Results at 10:30 a.m. EST on Thursday, November 8, 2018. 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 third 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, and Adjusted EBITDA. 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.

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, and
Adjusted 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.

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, expected AOCF and AOCF per share, expected total debt to
Adjusted EBITDA ratio, business strategy and objectives, development
plans and programs, business expansion and cost structure and other
improvement projects, market conditions in Canada and the U.S., expected
synergies from the integration of Canwest, EBITDA and synergies
associated with the NGL acquisition, 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 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.

Contacts

Superior Plus
Beth Summers, (416) 340-6015
Executive
Vice President and Chief Financial Officer
or
Rob Dorran
(416) 340-6003
Vice President, Investor Relations and Treasurer
Toll
Free: 1-866-490-PLUS (7587)

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