Superior Plus Corp.

Thank you for standing by, and welcome to the Superior Plus Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star-1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star-1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Chris Lixon-Hill, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning, everyone, and welcome to Superior Plus' conference call and webcast to review our 2024 third quarter results. On the call today, we have Alan McDonald, President and CEO, and Greer Coulter, Chief Financial Officer. For this morning's call, Alan and Greer will begin with their prepared remarks, and then we will open up for questions. Listeners are reminded that some of the comments made today will 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. These refer to Superior's continuous disclosure documents available on CDAR Plus and our website. Dollar amounts discussed on today's call are expressed in U.S. dollars and less otherwise noted. I now turn the call over to Alan.

Thanks, Chris. Good morning, everyone, and thanks for joining our Q3 earnings call. Before I jump in, I'd like to welcome Chris Lichtenheld, our new VP of Investor Relations. Chris joined us about two months ago and is a seasoned IR veteran who's also had experience on both the buy and sell side. We're really pleased to welcome Chris to the team, so welcome. Today is obviously a significant day for Superior Plus, and I'd like to take a few moments to provide some context about our strategy, our future, and our plans to transform the company. I use the word transform for good reason, because that's the journey we've been on. When I joined Superior back in April of last year, it was immediately apparent that this was a company with a lot of potential, but realizing that potential meant tackling some structural challenges. And with any transformation, structural challenges are the most difficult and time-consuming to overcome. In discussions about the long-term future of Superior Plus with our shareholders and with many of you, I heard familiar themes. What's the future of propane, and is there a path to growing the core business organically? How will you invest for growth with the current leverage and dividend obligations? Do you have the right presence in emerging energy markets like CNG, power generation, and renewables like RNG and hydrogen? And finally, do you have the team and expertise to make it all happen? These questions have guided our focus over the past year, and I'm pleased to tell you all today we'll provide you with the first look at our strategy to transform Superior Plus into the company we all believe it could and should be. So with this in mind, let me provide some context in terms of how we plan to raise the bar and Transform Superior Plus, moving forward with a more profitable, modernized business model and a stronger, more flexible capital structure. But before I discuss our future, let's start with where we were. Our company's history includes a long track record of consolidating the North American propane business through acquisitions, and today we proudly operate as one of the leaders in the market across North America. Our most recent acquisitions, Soteris, gave us even broader exposure to growth opportunities and positioned Superior Plus as the leader in the CNG energy sector at a time of unprecedented demand for alternative and local lower carbon energy solutions. Despite the addition of Sataris, our challenges remained. We were structured to integrate acquisitions, and our core propane assets were not delivering substantial organic growth. While we acquired good assets, we need to organize and operate them differently. Our propane business spanned from producers all the way to commercial customers and individual households across North America. But we still operated like a regional company, and the performance reflected this. Our job was to take advantage of this incredible market footprint and customer base and transform our operating model to drive sustainable growth and profitability. And that's exactly what we are doing. which leads us to where we are today with a clear plan to move Superior Plus forward. Over the past 18 months, we've initiated key organizational changes, including, one, retooling our leadership with an experienced team focused on operational excellence with a mix of both internal and external talent. Two, we've significantly revised our compensation structure to drive alignment between management's priorities and those of our shareholders. Three, we've made the deliberate decision to shift away from growing through acquisition to a more balanced and disciplined capital allocation approach with a focus on shareholder returns and growing the business organically. And finally, as with any successful operations-focused organization, we are embracing performance management, Our new company-wide balanced scorecard has established aggressive performance objectives for each aspect of our business. And as we all know, what gets measured gets improved. These decisions were critical enablers of our transformation. And while we are in the early innings of reaping the benefits from the work we put in place, I want to share more with you about where we are going. To transform Superior Plus to becoming a best-in-class energy solutions provider, there are three main priorities we've identified as critical to our success. First, I'm excited to introduce Superior Delivers, which is what we've named our collective efforts to transform our propane business to drive more sustainable, profitable growth. Superior Delivers is a productivity initiative and a growth initiative. In fact, it's an everything initiative, a true transformation of the propane operating model. We have been meticulously working on this transformation program over the last eight months, and it comes after an exhaustive review of our underlying business assets, operating model, and competitive advantages. Today, we have over 100 specific initiatives in various stages of planning and execution that are all centered around three key areas of the business. First, growing our customer base profitably and retaining our customers for life. Second, becoming the lowest cost operator in the industry. And third, allocating our capital effectively and generating best-in-class utilization of every dollar. To do this, we had to shift our thinking away from inorganic growth toward becoming customer-centric, putting our customers at the core of every decision we make. Data-driven, making decisions with better insights than ever before, and operationally excellent. holding ourselves accountable to ambitious targets and achieving measurable results in everything that we do. Over the next three years, as we continue to execute Superior Delivers, our vision is to emerge as the leader in attracting and retaining profitable customers for life. We will be the low-cost operator and truly use our scale as a competitive advantage with a capital efficiency far beyond historical levels. While we are announcing this initiative today, We aren't starting today. Superior Delivers has been in progress for months now, and while the road will be long, we've already had some encouraging early wins, and the changes we have made to the business will ensure we have the tools and capabilities to continue to execute with haste. By early 2025, we anticipate our propane business will begin realizing the optimization improvements with a full realization of at least $50 million of incremental EBITDA by the end of 2027. Second, with Soteris, we continue to believe there is excellent long-term opportunity as the industry shifts and new demand for alternate energy solutions arise. There is tremendous excitement about the forecasted growth in demand for energy, and Soteris is well positioned to remain the leader in this space. We are cautiously evaluating the best opportunities, including expansion and introducing new offerings to capitalize on prospects beyond the well site. While we are continuing to invest in MNSUs, we're moderating our pace of investment while we assess new markets to ensure optimized returns on our capital and to maximize financial flexibility and free cash flow. Now, this is a foreseeable evolution for Sataris. As with any emerging businesses, opportunity shift and leadership needs to make sure the business continues to adapt to changing market dynamics. Third, As announced this morning, we have made the strategic decision to reduce our dividend by 75%. Since our time as an income trust many years ago, Superior Plus has allocated a disproportionate amount of capital towards supporting our dividend. This has limited our financial flexibility to invest more substantially in other shareholder value-creating opportunities. We see the transformation of Superior as all-encompassing. And creating financial flexibility is the final key element. A significant decision, yes, but one we feel is critical in positioning the company for long-term success. With this decision, we immediately benefit from approximately $135 million Canadian in additional available free cash flow, which can be directed to short-term opportunities to deliver value to our shareholders by investing and buying back stock. It's an exciting day for Superior, and I'm pleased to be able to share this vision with you, and it's just the beginning. That's why we're also announcing our plans to host an Investor Day the first week of April 2025. During this event, we'll provide deeper insights into our plans for Superior Delivers, Soterras, and our financial strategy, along with an opportunity to meet our team and hear directly from our leaders about our progress. In the meantime, we'll continue to do what we've been doing, challenging ourselves and the business, focusing on execution, and allocating our capital with discipline. Now, with all that said, I'd like to comment briefly on our Q3 results before passing it over to Greer. Our third quarter is a seasonally lower contribution quarter for us. We're nonetheless pleased with our performance. Our propane business performed in line with our expectations, and Soteris delivered a strong quarter with 15% growth in EBITDA, despite increased competitive pressure. And with that, I'll turn things over to Greg.

Thank you, Alan, and good morning, everyone. First, I'd like to elaborate on Alan's remarks about our approach to capital allocation. We continue to be very focused on shareholder returns and effective allocation of the company's cash flow. Over time, it became clear that the market was not giving us value for the dividend we were paying and that this was not an optimal use of our capital. The change to reduce our dividend by 75% provides an opportunity to shift our focus to repurchasing our shares while still maintaining an attractive dividend. The decision provides an additional $135 million Canadian dollars annually to buy our stock at attractive levels, and we are confident that this will provide better return to our shareholders, particularly when considering the prospects for the propane businesses as we execute superior delivers in addition to the future potential for our CNG, RNG, and hydrogen business. The shift from dividends to share repurchases balances our approach to capital allocation, and consistent with our previous messaging, we remain committed to investing in our businesses and delevering the balance sheet. Over the longer term, the increased cash provide additional flexibility when contemplating the pace of delevering and when considering future growth opportunities, both organic and inorganic. Before I get into the Q3 results, I'll remind everyone that the following dollar figures are in U.S. dollars as we completed our transition on reporting currency beginning in Q1. Overall, the business generated $17.4 million of adjusted EBITDA in the third quarter, which represents a decrease of $1.2 million over Q3 2023. The majority of this decrease is a result of lower adjusted EBITDA in the propane business, partly offset by a $4 million increase in asset tariffs. Our third quarter net loss of $62 million was an improvement of $18.3 million compared to the prior year quarter. Improvement is primarily due to higher income tax recovery and lower transaction restructuring and other costs. Now turning to the businesses. Starting with propane, in aggregate, these businesses landed roughly in line with our expectations. The U.S. propane business had a good quarter given the strong results and higher tank levels coming out of Q1. ADJUSTED EBITDA OF NEGATIVE 7.9 WAS 3.3 MILLION LOWER THAN THE PRIOR YEAR QUARTER. THE CANADIAN PROPANE BUSINESS PRODUCED 1 MILLION OF ADJUSTED EBITDA IN THE THIRD QUARTER, A DECREASE OF 2.2 MILLION VERSUS Q3 2023, AND WAS PRIMARILY DRIVEN BY THE DEVESTITURE OF THE NORTHERN ONTARIO ASSETS IN THE PRIOR YEAR AND LOWER SALES VOLUMES DUE TO WARMER WEATHER. THE WHOLESALE BUSINESS GENERATED ADJUSTED EBITDA OF 1.8 MILLION IN THE THIRD QUARTER, an increase of 600K compared to the prior year quarter, primarily due to efficiency in the business. And moving to Soteris, the business produced adjusted EBITDA on the third quarter of 30.3 million, which represents a 15% increase compared to the prior year quarter, which is primarily due to a higher MSU base, driving a 24% increase in volumes compared to the prior year quarter, and partly offset by tighter margins. Now turning to corporate results and leverage, Corporate operating costs for the third quarter were $7.8 million, which was roughly in line with the prior year quarter. Our leverage ratio at September 30, 2024, was 4.0 times. As you will recall, Q3 is historically a higher leverage quarter due to seasonally lower cash flow and higher working capital. Over a year to date, EBITDA has caused leverage to remain about a tenth of a turn higher than we expected. Over the remainder of 2024, we now expect leverage to remain closer to 4.0 times as we commence our share repurchase program. Over the longer term, we remain focused on our 3.0 times target. Looking at 2024 guidance and expectations, we are recalibrating our adjusted EBITDA growth expectation from approximately 5% to flat compared to 2023 pro forma adjusted EBITDA. This is primarily a result of year-to-date performance and not an indication of our estimate for Q4. We are expecting to come in around our original budget. Growth in propane is expected to come in at the low end of our original estimate, around 1%. And as discussed on the Q2 call, we expect Soteris to grow at 10%, both of these relative to our normalized 2023 results. In line with the decrease in adjusted EBITDA growth expectations, we are also lowering our 2024 capital expenditure guidance from $230 million to $190 million. This reduction reflects improving capital efficiency in the propane businesses as we begin to see some of the benefits of superior deliverers, coupled with a more cautious approach to capital spend at Sartaris in light of evolving market dynamics. Lastly, as discussed earlier, the board has approved a quarterly dividend of 4.5 cents Canadian per share. And with that, I will turn the call back over for Q&A. Certainly.

And as a reminder, ladies and gentlemen, if you do have a question, please press star 11 on your telephone. And our first question for today comes from the line of Gary Ho from Desjardins Capital Markets. Your question, please.

Thanks. Good morning. Alan, you mentioned in your prepared remarks the various changes you've made internally, such as retooling management, comm structure. The one that intrigues me the most is you talked about performance management. So what gets measured gets done. So what are the key KPIs for yourself and kind of senior management team? Is it EBITDA growth? Is it share price, free cash flow? Just wondering what are the key KPIs for the management team?

Hey, Gary. Good morning. You know, those comments are in the context of the transformation in propane. More generally, they're kind of applied to the company, but also they're very particular to the transformation of propane. So let me kind of give you two versions of it. When we're thinking about the propane business, if you think about a company that was structured for being very adept at integrating acquisitions, you can imagine the types of things they'd be looking at, synergies, systems, transitioning, things like that. We're really thinking of it in three big buckets. One bucket is about our ability to attract and retain customers. So there we're looking at customer number growths and customer retention, which is a level of granularity that really didn't exist before. in the previous iteration. And you can see why. When we have this disparity of systems and bringing new companies on, all the records are obviously by default completely different. Second thing is cost. How effectively are we managing our costs to serve? And by that, looking at the profitability of each of our customers. And then finally, capital. So when you look at the propane business, those are the big ones. When you look at the corporations, It's really about how effectively are we growing the business. The gentleman sitting across from me has been leading a lot of initiatives on our return on capital and making sure we have that balance right. We're looking at the employee base. We have the best, the most engaged and inspired workforce and all of the talent we need that we're both developing internally and acquiring to make this all happen. And it's really those kind of parameters of the scorecard that give you that sustainable, profitable growth. So we're looking at how do we make these assets perform to the fullest extent of their potential, and then how are we investing to drive the best growth for shareholders, the best value growth for shareholders long term. So this scorecard process is much more than a scorecard. It's really about how you want to run the company going forward, and we like to think that we've got a really balanced approach to The last aspect I'd comment on when it comes to performance management is what's inherent in that is setting very specific performance targets and tying both compensation and performance evaluation to that. So we're setting high expectations of ourselves. They're not theoretical. They're measurable. They're on our scorecard, and that's what we're working toward delivering.

If I could add, just from a numeric standpoint, really focused obviously on EBITDA EBITDA for share, EBITDA for share, and return on investment capital. Those would kind of be the four that I would throw out.

Okay, perfect. And then I just wanted to kind of dig into superior deliveries a little bit, U.S. $50 million plus. Are you able to kind of break that down? down in maybe key buckets, like how much is maybe cost cutting, how much is customer growth, et cetera. If you just give us a preview, it is a bit of a wait until investor day in April. And any material restructuring costs we should budget in as well?

Well, let me take the first part, and I'll let Greer take the second part. You know, we're going to give you more detail in April, and I'll apologize for the date for all of you. Once you get through blackout and the quarterly results that have you all occupied, you get right into March break. So for us, it's just kind of the most convenient time for all of you. So that's why April. When you think about where it's coming from, it's three big buckets in terms of the cash generation. It's the customer aspect, it's the cost aspect, and then it's the capital asset, rationalization and utilization. And we'll be able to give you... Some insight as to where it's coming from. It's always going to be a balance between being as transparent as we can and then protecting some competitive information. I can tell you today, as I mentioned in my prepared remarks, we have this very meticulously detailed. We've got over, well, I can tell you, we have 137 known initiatives that we're running down right now. Some are already in execution phase. A number of others are in planning phase. We have an approval meeting after this for three hours to go through a bunch. So it's very well laid out internally, and we're going to do our best to give you as much transparency as we can in terms of where the money is coming from and how we're thinking about it. So, Greer, do you want to talk about the second part of Gary's question?

Yeah, just if I understand it right, this is not about restructuring. So, no, I think this is more about the way we use our assets, you know, maximizing the yield on what we've got, making sure that we've got the right asset base, whether we're talking physical locations, whether we're talking trucks, tanks. This is a big part of this. It's using data for red optimization, as an example. It's... It's how we price customers and using the data to more intelligently price customers. This is not about cutting costs and cutting people. So, no, I think there would not be anything significant as far as we see right now. Of course, we're going to go through this project and we're going to learn stuff along the way. But, no, at this point, I wouldn't see anything significant. We are working with a third party on this, so there will be fees in connection with that, but no, there wouldn't be anything that we can see today on restructuring.

Perfect. And then maybe just my last question. It sounds like you're pretty active with the buyback, and you've mentioned channeling that $135 million savings to it. So today's share price is roughly 10% of your shares outstanding. So how long would you commit this to? Is it a one-year commitment, or will you be continuing up to a certain share price or multiple? Any game plan in terms of level of buyback, not just kind of upcoming 12 months, but beyond?

Yeah, here's what I would say. It's career again. So the starting point is we will shift – you know, the difference in previous dividend to, you know, the new dividend, that will all go to share repurchases. You know, in addition to that, I'd say in the short run, we'll be even more aggressive than that. And that's the rationale for moving the leverage target at year end up about two times to give us more flexibility to be more aggressive at these levels. We think, you know, this is very good value for our shareholders. And so, you know, we'll you know, the run rate of the saved dividend, if that makes any sense. I think, you know, in terms of the longer strategy, you know, at what level we're comfortable buying at, I'd say, you know, we see value for quite a ways here. So, you know, I can't tell you exactly how long we see this to be a great value. It'll obviously depend on the way that the share price moves, but we've got quite a lot of runway here where we see incredible value in the shares, so it'll be for quite some time.

Perfect. Okay, that's my question. Thank you. Thank you. And our next question comes from the line of Robert Cotillier from CIBC Capital Markets. Your question, please.

Hey, good morning. I just want to clarify, based on what I heard, it sounds like the Superior Deliverers Plan doesn't involve any new capital investment. It's more about rationalizing capital, maximizing what you have. Is that correct?

Yeah, for the most part, Rob. Hey, good morning, Tom. You know, let me give you two examples. We've announced today that we're reducing our guidance around capital. A superior deliverance initiative was one of the early ones, was focused on how we manage our tank inventory and thinking about customers that have left us or inactive customers, our tank inventory in market versus our new tank inventory. So by changing how we measure and maintain our tank levels, and I don't mean fuel here, I mean the actual physical tanks, we've been able to dramatically increase our tank recycling program. So that's contributed millions of dollars to savings in capital in this year. So that's one of the early wins, which is, you know, a nice cashback. So there's going to be a run rate reduction in the amount of capital that Superior – propane is going to require going forward. By the same token, we're going to be making some small investments in things like pricing optimization tools, which will be more on the IT side. I talked a lot about data, integrating data analytics and being more data-driven. We think there's a ton of potential to be unlocked by giving the people in our organization much better tools when they're making decisions about things like pricing. For example, That will have a capital component, but in terms of big capital assets, we see that as being a small portion of this, and it's more on the capital savings side than investment. Greg, would you say that any different? I don't agree with what you said, for sure.

Right, so some investment, obviously, but a net benefit to the capital profile then.

That's right, and we don't see it as a... We don't see it as a sustained capital requirement in terms of transformation. It'll be some one-time capital investments.

I don't want to diminish the significance of the work involved and the operating effort and skill required to achieve what you're targeting here because I do believe your targets are not insignificant. But I wonder what informs a relatively long timeline in achieving your Epidog gains, understanding that, you know, some of this has already been initiated. Maybe another way to look at it is, like, what sort of a path? Is it back-loaded or is it sort of a probable pace of gains?

How are you looking at that? Yeah, well, I'm going to let Greer jump in here, but let me start by saying this. That's because it's not a cost-reduction exercise. If it was taking costs out, that's not hard to do. This is about building capabilities, and because it has a big top-lining customer component, when you acquire a customer, obviously you incur the expense in the first year, and then you start to see contributions. So we're thinking about customers in terms of lifetime value. So for us, the growth element, the capability to demonstrate to all of you that we think we can take material share in this market, we're very confident to that. We have to build the capability to do that, which is well underway, and then we have to apply it in market, which is starting to happen, but that's going to take time to pay off. So I would think about it that way that, you know, and it's not as long a time frame as you think. We're saying, you know, the run rate in 27, so that means we're effectively achieving most of the initiatives by the end of 26.

Yeah, I was going to say something similar. I think that is an important point is that work will be done by, words if you look at the split of that incremental at least 50 you know probably 10 to 20 of it will come in 2025 20 to 30 that will probably come in 2026 and the remaining whatever 10 depending how you mix those numbers will be just kind of the full realization of the stuff that you completed by 2026 if that makes any sense hopefully that helps yeah and we're not stopping at 50 we still have other opportunities that we're exploring so

Yeah, I guess I read the press releases by the end of 27, so I thought you'd hit your run rate at the end of 27, but it sounds like it's at the end of 26. So that's a better frame of reference. Thank you. Thanks for the question.

Thank you. And our next question comes from the line of Daryl Young from Stiefel. Your question, please.

Hey, good morning, everyone. So with respect to the new Superior Deliverance Plan, how should we go about measuring your progress on that? Because something that's always been challenging with the Superior story is just the impacts of weather quarter to quarter and really glosses over some of the hard work that's done. So are there any metrics you plan to report on to kind of show us progress on how you're doing on that plan?

Yeah, I think that's one of the big challenges that we face. that we're tackling in terms of how do we get the right information in your hands so you can see the progress and really delineate it from the normal cyclicality of the business. We're going to give you more at the investor day, Daryl. And by the way, good morning. Thanks for the question. I think what you should expect to see is us breaking down in terms of how are we doing with our customers, how are we doing with our costs, and how are we doing with our capital. It's coming upon us to give you more insight there. So more to come on that. As always, Greer and I have a couple of things that we share in common that we fundamentally believe in. When we give you a number, and this is why we've been hesitant to talk about superior delivers until now, we weren't prepared to give you a number until we had one we could absolutely stand behind. And then when we give you metrics, we want them to be thoughtful. We have to appreciate the sensitivity of putting that information in the market competitively. but we want to be prepared to continue to report on them. So as Superior delivers, evolves over the next couple of months, we're going to finalize exactly how we're going to characterize this to you, so you should see more to come on that.

Got it. And then it sounds like you're going to be very aggressive on the NCIB very quickly. If the share price doesn't react the way you maybe hope it does, would there be an argument for launching an SIB?

Yeah, look, it's a tool we have. It's a tool. We know that it's there. Yeah, I think it's something that we'll continue to consider depending on what happens. So, yeah, absolutely. I mean, at certain prices it becomes more interesting. But let's kind of see how this plays out.

You know, it's a good point to mention that the dividend decision – we thought was very necessary because one of the things that we believe our company needed going forward was flexibility in terms of its financial structure. So that's important not for managing a share price day-to-day, but to be able to give us the freedom to make all the right decisions for the company. And now if you look at the situation that we're going into with available cash flow, It gives us the opportunity to have choice when we're making decisions. So, yes, we're going to support the share price and share buybacks. Yes, we're going to be able to have the freedom to invest in the things that we need to, like superior deliveries, tariffs. But, you know, what we want to do is now that we've got this financial flexibility, we're going to hang on to it. So it's really, really important for us not to get distracted from that.

Got it. And then with respect to – and apologies if I missed this at the opening – With respect to the CapEx cut, how much of that is truly sustainable going forward? Like, is there a catch-up coming, the $40 million reduction this year in the future? And would you give us any insights into where your CapEx budget for Sertaris might be next year?

Yeah, so it's for here again. I think I'll say, so of that $40 million cut, 10-ish is going to be Sir Terrace. Probably 30-ish will be the propane businesses. Part of it is, you know, if everything we identified that led to that 30 was all we would identify, then I would say that, you know, part of it was a resetting of, you know, how many trucks, how many locations we need. And then there's a period where you kind of buy less of that stuff to reset to that level, and then it probably rebounds. Now, I think, so if 30 was the number, and I think there's more to come, so I think there's more stuff that we'll look at, so let's just, there'll be more to come on this, but no, I don't think that it's permanent. That's on the propane side. So, well, I think there's probably more to talk about. If 30 was all we found, then we might give back 10 or 15 of it next year, I'd say. Hopefully that makes sense. On the Sorterra side... I think we're pretty far through the year. We're going to execute most of this capital plan for Sir Terrace. I think the work we're doing now, as I said, we'll probably be more cautious on Sir Terrace capital. I think what we're doing is evaluating whether we should be shifting some of the capital to opening up new markets. We've been pretty focused on driving as much capital into new MSUs and going at existing markets. And we're seeing, you know, there's a different supply-demand relationship. And so for us to spend a little more money on opening up new hubs, as we call them, and going at new markets is something we think we should be doing and probably buy fewer MSUs. I think overall, the capital probably – there's a good chance that it will come down next year as we – kind of look at the returns on MSUs. As I said, we shift some of the capital. Maybe we look at some ancillary ideas to shift the business to different spaces. This may be a bad example, but say power generation, I wouldn't necessarily take that to the bank, but these are the kinds of things that we're thinking about. But I think probably fewer MSUs, opening up other markets, and maybe other ideas to shift a little bit of capital away from the Overall, the capital will probably come down. At this point, I can't give you really more than that because we're doing the work, right? So we'll give much more information, obviously, when we set our 2025 guidance. Then, of course, when we get into the investor day and get multi-year numbers. But generally, I would see the capital in all likelihood will probably be coming down as we get a little bit more cautious and just react to what we're seeing in the market.

Yeah. The only thing I add to that, Darrell, is... Look, what we did last year with Sataris, investing in MSUs was absolutely the right thing to do. We were oversold, tremendous opportunity in the market. It was the first year that we owned the business. And really, when you think about capital, what other options do you have other than MSUs? Now that we've had the business for a year, you say, okay, now we have more on the table. So we're looking at expanding our hub presence in the U.S. and Canada. which is going to be really important for us because as we talk, we want to start to bring new markets online and new verticals. And one of the things that we'll continue to inform you guys of and remind you of is you can buy an MSU quickly. You put an order in for an MSU, you can have it in a matter of months now. You can't open a hub in three months. That takes two years. So when you start to shift the capital from MSUs to market expansion or investing in other adjacencies, It's not the same spend timeline. So you might see some ebbs and flows there. But I don't infer from that that we're not investing in the business. It's just the timing of it.

Got it. That's good. That's good.

I'll jump back in the queue. Thanks, guys. Thanks. Thank you. And our next question comes from the line of Patrick Kenny from NBF. Your question, please.

Thank you. Good morning. Yeah, just to follow up on the NCIB and, you know, I get the merits of buying back at these levels, but just given your current leverage is still, you know, a full turn about your target, just wondering how the buyback strategy compared to, you know, more of a first things first approach to capital allocation, just in terms of prioritizing the leverage ratio first, you know, using the cash savings approach, to get the balance sheet down to that three times target and then assess the merits of a share buyback at that point versus, you know, resetting the dividend back up or accelerating capex.

Hi, Patrick. It's Greer. Well, first I would say that, you know, If we left the dividend intact, we remain confident that we could achieve the growth targets that we set out and the leverage target that we set out. So us reducing the dividend and having that cash flow, yes, certainly we could get at that three times target quicker. I mean, unanimous around the table is that the better use of capital is to be purchasing shares and to not of de-levering strategy. So that's the view, but I think it is important that we say that is still part of our strategy. It is our goal to get to three times. We'll obviously lay out a little bit more specificity around that, but I think that something in early 2027 as a time horizon is probably realistic to get to three times. But things are going to evolve and change, and the share price will move around or, you know, there may be a time when we do move away from share repurchases, but certainly that's looking like no time soon. I think there's lots of runway here where, where we can buy shares, but certainly we think that that our priority here is to buy the shares back aggressively at this level. And, um, uh, you know, as I say, we'll still be able to manage the lower, uh, debt pathway on the original plan that we had, but, um, Maybe at some point that changes, but that's our priorities at this point.

Yeah, I think that the only thing I would add to that, hey, Patrick, is we said we want to get to three times leverage over the next couple, three years. And what we've heard back from a lot of you is we don't see a path to you getting there. Now, Greer and I knew for months now that we had a path to getting there, but we were reticent to share the details until we could do it confidently. But if you think about the things we're announcing today, we're generating and we will be generating incremental EBITDA contribution from propane. So that's number one. That's going to help. We're going to be more capital efficient, and we're going to reduce the cap that's required to run and grow the propane business. And the dividend decision creates more free cash flow in the organization. So we see, obviously, a short-term opportunity with share buybacks or a near-term opportunity, but this in no way jeopardizes our ability to manage our debt. I think, if anything, we've capably answered that question out there of how do you get from here to there with your current cash flow situation, and it's those three contributing factors that are going to make the difference for us.

Okay, that's great. And then Just on Sir Terrace, the 15% growth rate that we're seeing year over year may not be as high as what was hoped, but still obviously quite attractive. I get the strategy to be a little bit more cautious on deploying MSUs going forward, just given the competition, but I'm curious if the pullback in allocating capital towards Sir Terrace's growth profile is more returns driven or are you seeing you know weaker say duration or commercial terms uh with customers and and just trying to get a sense as to what sort of the run rate um growth profile looks for that business going forward yeah i i think to be fair we're

Obviously, if you toggle capital down a little bit, the growth will come with it. Higher capital, you're going to generate higher growth, all of the things equal. I think what we've got to do is the work to understand in pretty intricate detail what these returns look like. I think for me to answer all the questions you just asked, which are really good ones, I don't have those in front of me right now. It's the work that we're doing right now as we continue to recalibrate the business. I would expect us to have a much more coherent answer. You know, when we announce our guidance in terms of why we've made the decisions we've made and what we expect the business to grow at, you know, obviously we're running different scenarios and flexing it. So, you know, quite frankly, the questions that we're asking ourselves right now. So that's probably the best I can do for you.

Yeah, I think, you know, and if you think about the tariffs, you have captive markets, right? surrounding our hubs, and a demand within those markets. And within the markets, there's demand growth, which is why you've seen what we're doing. And then in new and emerging markets, there's obviously demand. We're trying to match our MSU fleet with the demand in each of those segments. So invariably, as we're creating or entering new markets, the demand for MSUs or the potential to utilize MSUs increases. So they kind of follow in tandem. And what we don't want to do is introduce, and the MSU fleet introduction is a lot more dynamic. And, you know, we talk about capital in annual terms, but we're making these decisions every month. So what we don't want to do is get out of pace with the expansion in the market and the MSU fleet. We want to keep those moving in tandem. And invariably there's going to be sort of an accordion effect where you have years where you do big investment like last year. and then years where you start to rationalize it and you spend more of your capital on market expansion. So I don't want you to read too much into the MSU fleet investment in terms of the growth of its tariffs.

Okay, thank you. Maybe the last one, if I could, just, Alan, you touched on, you know, the slew of tuck-in acquisitions before your time as a management team, obviously. that we're supposed to deliver, you know, attractive synergies, but perhaps never materialized. I'm just wondering if divestitures of some of these underperforming businesses or platforms were contemplated a lot, you know, along with this right-sized payout strategy, or is that something that is still on the table ahead of April and yesterday?

That's a great question. Yeah, of course we looked at divestiture. This is why it took so long. So we're looking at, I don't know what it was, 45 acquisitions or something we did. And you look at all these assets and you say, okay, are these markets we want to be in? Are these assets that are attractive? Is there a higher and better use of these assets? In other words, are they more valuable in terms of their disposition value than they are to us? And I can tell you unequivocally, when we looked at our, and I'm talking about propane assets here, but when we looked at the propane assets, You've got to separate them, right, because you have the capital assets, bulk plants, trucks, those come and go. And then you have the customers. And by and large, we're in the right markets. We're in markets that have good growth. They're attractive from a pricing and margin standpoint, and we've got a good customer base. So we think actually we've got a really good footprint to work with. I don't see any markets – we haven't identified any markets that we want to exit at this point. For us, it's really about, okay, how do we truly get the advantage of scale? Because even though we have scale, we're not taking advantage of it, and we're operating more like a regional propane company than we are like a big national. So that's what is incumbent upon us. So, you know, my CFO hasn't kicked me yet, but – I can tell you there's no dispositions that were contemplated in superior drivers. We've got the right assets.

Okay, thank you. I appreciate the comments.

Pleasure. Thanks. Thank you. And our next question comes from the line of Aaron McNeil from TD Cowan. Your question, please.

Hey, morning, all. Thanks for taking my questions. As it relates to Sertaris, now that we're essentially halfway through the fourth quarter and getting into that winter season, How would you characterize the competitive dynamic in West Texas, recognizing that you're likely beginning to mobilize some of your assets out of that region and into some other diversified opportunities outside of energy?

Hi, Aaron. It's Greer. I'll take a shot at this so Alan can kind of fill in the missing pieces. Yeah, the summer market, as we've talked about before, is a little bit different than the winter market. So, you know, you're more reliant certainly on the drilling and completion work in Q2 and Q3, roughly. Yeah, here we are kind of going into the winter season. You know, we anticipate that, you know, the utility work that we've traditionally been able to do, we're just kind of moving stuff over to that right now. So that's what we expected to be similar to previous years and frack water heating as an example, and mine heating. These other kind of heating or winter kind of drives businesses or sectors, we still anticipate those to be as strong as they were in previous years. So, yeah, the conditions that we have seen in the oil and gas space are, you know, I think if you look at what we saw in Q2 and what we said on the Q2 call, just that we anticipated that those would continue kind of through Q3. You know, when we saw that, it was pretty much exactly kind of what we had thought, that it would be, you know, similar but maybe not quite as severe as we continue to kind of evolve. And I think that, you know, the business did a good job kind of evolving. I think the big question I think really is, you know, when – so just to be clear, I think we're expecting to be, you know, oversold, busy, solid economics through Q4 and Q1. I think the work that we're doing now is how you evolve into the summer season of next year and how you most effectively deploy our leading fleet of MSUs to places where we can get the best return. This is why we're talking about opening up other markets and obviously more to come on that. Yeah, I think what you're asking is, you know, as we move into the winter season, are we expecting it to be kind of similar to previous years? The answer would be yes.

I guess just, though, in real time, like, are you seeing the supply-demand equation in that market tightening up today?

Are we talking oil and gas, or are we talking the other markets? The West Texas market. I think it's similar. Like what we saw in Q2 was similar to what we saw in Q3. I mean, you see less pressure, obviously, in Q4 and Q1 because some of the fleets, you know, move away. There's less supply as you go and chase other business. So the dynamics are a little bit different. I mean, I suspect that the market's a little bit easier to operate in the winter when, you know, you have less supply around, so.

Yeah, and you think about, too, these contracts don't change overnight. While they're dynamic in terms of the jobs, over a three- or four-week period, the contracts we entered wouldn't change dramatically. And as Greer said, we're starting to sort of reallocate the fleet for the winter season. So it's going to reflect, to Greer's point, more of the dynamics of last year, but I can't infer from that what that means for next year.

Maybe just building on Daryl's question on Superior Delivers, I assume 2024 is the baseline year, and then I would also assume that you're using maybe a static weather assumption. Is that fair?

That's a great question, and yes, we're 2024 is our baseline year, and any incremental benefit from weather would be in addition to the numbers that we might have. Internally, when we're budgeting, we use a five-year average. For the last 18 months in my tenure here, we've trended way below the five-year average, but we're not basing sort of optimism around weather into our numbers. These are real savings. Where am I? Yeah. Because I want to make sure the CFO isn't giving me the evil eye here.

Yeah, that's right. I think, like, obviously it's been the degree days have been not helpful for sure. I think we've been kind of running lower than averages. And, yeah, if we had that, that would be tailwind. And in addition to that, yeah, that's what we're talking about on superior delivery. So, yeah.

And then maybe I'll sneak one more question in. You know, you mentioned being the lowest cost operator. Like, who do you believe is the lowest cost operator in the propane business today? And what sort of delta in margins, like a basis point delta in margins, do you think you need to achieve to get to become the lowest cost operator?

It's a really interesting market to make that kind of comparison to if you look at 70% of the industry being private and the remaining sort of nationals each with their own unique challenges. So I'm not sure that's necessarily going to be our baseline. For us, the question that we've been contemplating is what's the benefit of scale? Where does scale give you an advantage? And we think that we have to be better than other companies when it comes to acquiring customers. Being a low-cost provider also speaks to the profitability it generates. We think we need to be able to price better. I would say that where economies of scale come in place is really about density and asset utilization. So when we look at how we're going to structure the business, that actually contribute to lowering our expense as opposed to increasing. And let me give you an example. You have a customer that you acquire that's on a route that you're already delivering that's within five kilometers of your bulk plant. And you do that really specifically because they disproportionately contribute profit because they incur much lower expense in terms of cost of acquisition and cost of service. In another example, you take on a new customer who's 25 kilometers away from your boat plant on a route that you're not serving today. Those types of decisions are being made every day in this industry. And using data analytics and better insights, we're going to stop making them. That's where we think lowest cost operations is really going to come in. It's not necessarily the... You know, we're not looking to pay our drivers differently. We're looking at being much more efficient and having much more density and building the capabilities to be able to do that every day all across North America. So that kind of answers your question, I think, but, you know, more to come on that, and we'll give you specifics in terms of how we think about the cost base. Fair enough. Thanks, guys. I'll turn it back.

Thanks, sir. All right, Aaron. Thank you. And our next question comes from the line of Nelson Ng from RBC Capital Markets. Your question, please.

Great, thanks. I had a quick question on Superior Delivers. I know a few years back with the previous management team, there was this Superior Way Forward initiative, and that obviously included some organic growth, some efficiencies, I think adding sensors to tanks. and things like that. And I think the EBITDA improvement back then was also a roughly $50 million Canadian EBITDA improvement over a smaller base, but I think being realized over a slightly longer period. So I think when you put the Superior Delivers initiative together, I guess based on your discussions with the various providers, employees in the propane side. How did the previous initiative, the Superior Way Forward, what were some of the things that went well and didn't go so well, and what are you doing differently this time? What a good question.

Okay. Okay. We took a completely different approach and really didn't look at, you know, obviously we're familiar with Superior Way Forward, but we did an examination of the business from the ground up to say, where is value created in selling a commodity product that generates, you know, a healthy return and should have low churn? Are we acquiring customers? And, by the way, since day one, Greer and I have both said organic growth. These assets have to perform better. So we looked at what the potential was. How are we doing in each of those key elements? Are we acquiring customers well? Are we obtaining them? Are we efficient in terms of our operations? And through the course of that, we've identified substantial opportunities. So where superior the superior way forward may or may not have gotten the organization is kind of inconsequential. We looked at the operating model, made the determination that it's dated, that it wasn't data-driven near to the degree that it should be. We could do better with our availability of insights and decisions that we're making every day. And when you put those all together, this truly is a transformation of the model. When I say we acted like a regional propane company, I can tell you that in parts of our business, pricing is set regionally. It's set based on the interpretation of competitive pricing. It's not set based on understanding our cost to serve and our lifetime value and the impact it has on churn. So when you take those apart, you go, what a fantastic opportunity. We're going to be able to be more targeted, and we're requiring customers, and we can price them so we're optimizing the profitability but also making sure we're not churning them. all with a view to giving everyone in the organization a clear visibility in what their true costs are so we can make sure that we're pricing profitably and not, you know, leaving money on the table or, you know, adding unprofitable customers to our business. So it's a new day is what I'm really trying to say, and the superior way forward largely, you know, it really didn't factor into our thinking. We're starting from scratch with the company that we got 18 months ago, not anything that was before that. And I will tell you, though, last point, a lot of people that were part of the organization in those days are still part of the organization. They're leading this, you know, list of 100-plus initiatives that I've been talking about. And the feedback we're getting from them is a tremendous amount of excitement that, you know, that we're going to be part of this transformation. But they see a company that has a lot of opportunity in front of it. And that's really energizing for the team. And to be honest, I'd say they're energized to the point that I hadn't seen in a couple of years. So, you know, we're really excited about where we're at.

That's great color, Alan, and we'll look forward to more details in April. So just switching gears a bit in terms of Sotaris, obviously the oil and gas sector is a big focus for everyone. Can you guys just talk about the competitive dynamics you're seeing in the oil and gas sector? Are For example, are many of the energy service providers, are they all adding, or are many of them buying MSUs and kind of vertically integrating it and rolling it into their product mix?

No, we're not. We haven't seen any change really in terms of the composition of the industry. There were some big players like us that are coming into the segment. There were some small players who continue to operate. We don't see them aggressively investing CapEx and expanding the fleet. And there were some companies that had this as an adjacency that they were in a related business and added some MSUs. I will tell you that We're the leader in terms of investing outside of the oil and gas sector and have done the most work there. Some other companies are looking at adjacent verticals and power generation. But we're not seeing a big uptake in MSU production by non-traditional competitors at this point. Okay.

And I think last year there was... a supply constraint on MSUs and I presume and then they increase their production capacity so I presume you're not seeing a supply constraint so anyone who wants to buy MSUs can but I think what I'm hearing from you is there hasn't been a big increase in MSUs from a from the market perspective in terms of you're not just seeing a whole bunch of people buy MSUs and trying to deploy them into the sector?

No. I mean, if you unwrap that a little bit, are we seeing supply constraints? No. And like me, you know, there's not an empty lot of MSUs for sale. But, I mean, no, we're not seeing what we've seen in recent years. I think you'd have to, if you were getting into the business, you'd have to say, well, it's not just buying an MSU and rolling it out into an underserved market that has 200% oversubscription. like it was two years ago. You've got to get compression. You've got to get decompression. You've got to build a hub. And if you're going to go into the oil and gas sector, you've got to go into a competitive market. If you're going to go into an emerging market, augmenting power generation, let's say, well, now you've got a green field. You've got to build sales organizations. So you have to turn it into an actual business. So I think what you're seeing is the early opportunistic entrants have made some money. That's good. They had a small presence in the market, and now they're reviewing that presence. I can't speak on their behalf, but we're not seeing the degree of small market entrance that you would have seen sort of five years ago. This is becoming an expanded sort of sector, and to enter it is required much more than investing in half a dozen MSUs.

And then just one last question. I'm still focused on the oil and gas drilling fracking side. Do you have a sense of what portion of the, or in terms of the energy mix, how much is natural gas versus diesel, and how do you see that changing, or how has that changed over the last few years, and how do you see that changing over the next few years? Because obviously, I think it's a bit of a buffer in terms of, I think, the natural gas market, equipment is more efficient and lower cost. And I think your business will fluctuate less than, I think, the activity that you could see in the market in terms of the ups and downs.

Nelson, it's Greer. Just to make sure I understand the question, you're If you look at the frack spreads, you kind of have diesel only, you've got dual fuel, which can take diesel or not gas, or you've got kind of the E-frack, which obviously is powered by natural gas, but it's accompanied by power generation assets. Are you kind of asking, of those kind of three categories, how we see them evolving?

Yes, that's right. So in terms of the... Obviously, it's diesel versus natural gas, and some of them use dual, which is a mix of... mix of both, but do you have a sense of what the natural gas share versus diesel share is and how that's changing?

I don't have exact numbers in front of me and maybe we can pick those up. My understanding is that the diesel market is shrinking. Obviously, the economics are quite different on those and My understanding, and this is fairly far removed from what I do every day, but the experience for workers, they don't really want to work on diesel equipment, as I understand it. So my understanding is that the market for diesel equipment is shrinking, and it's being taken up by the EFRAC and dual fuel space. So it's definitely moving towards NAC gas. I don't know the exact growth rate between But, yeah, that would be, I think, it's, yeah, the declining market, two growth markets. And I don't know relative to EFRAC whether the dual fuel is growing faster or not. I don't know. But let us dig in. But that's probably the – that's maybe what I would say. I mean, so obviously we're going after the dual fuel. And then we do go out to the EFRAC market as well. And you would do that with either – the oil service, the owner of the frack spread would maybe have their own power generation assets or you could partner, we could partner with a third party to provide the power or they break it up and kind of source it or contract it on a micro basis. But we kind of go at both those spaces. But that is where the growth is, no doubt about it. Yeah, it's complicated numbers to get, Nelson, but we'll just let us look.

Obviously, You know, gas power is on the increase, diesel is on the decline. Is it 70-30 today? Is it 50-50? Let's see if some more can come back to you on that. And it's going to be different in Texas than it is in Alberta than it is in Oklahoma. So we'll see if we can get up there.

All right, thanks. I'll leave it there. Okay. Thank you. And this does conclude the question and answer session of today's program. I'd like to hand the program back to Alan McDonald, President and CEO, for any further remarks.

Look, what I'd like to do is thank each and every one of you for dialing into the call today and for listening to what we think is a pivotal and incredibly important time in our history. You know, we made some big decisions over the course of this quarter. It was Great to be able to finally give you some insight into Superior Delivers. We appreciate your patience. It's always hard to do that in an hour-long conversation. But hopefully we've given you some insights into how we're thinking about the business for the long term. And I look forward to our next call in February and then seeing you shortly after that for a more fulsome discussion on the Investor Day. So thank you all very, very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.