Superior Plus Corp.

Good day, and thank you for standing by. Welcome to the Superior Plus first quarter 2026 results conference call. At this time, all participants are on the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Lichtenheld, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Superior Plus' conference call and webcast to review our 2026 first quarter results. On the call today, we have Alan McDonald, President and CEO, Greer Coulter, Executive Vice President and Chief Financial Officer, and Dale Winger, President of Soteris. For this morning's call, Alan and Greer will begin with their prepared remarks, and then we'll open the call for questions. Listeners are reminded that some of the comments made today may be forward-looking in nature and information provided may refer to non-GAAP measures. Please refer to our continuous disclosure documents available on CDAR Plus and our website. Also note the dollar amounts discussed on today's call are expressed in US dollars unless otherwise noted. I'll now turn the call over to Al.

Thanks, Chris. Good morning, everyone. Thanks for joining us this morning. Well, the first three months of 2026 saw our business evolve dramatically. A second winter of above average cold weather challenged our propane business in the midst of a transformation, which is never easy. But it was the best way to stress test our operating models. At Soteris, it was an interesting quarter as we saw subdued website pricing despite volume growth and uncertainty arising from the conflicts in the Middle East which so far has not increased activity levels in the oil and gas sector. At the same time, we saw a dramatic development outside our traditional markets with the announcement of a substantial expansion of our data center business. Overall, we're pleased with the first quarter performance and encouraged by how the business is positioned as we move forward. Now, looking at our consolidated performance in Q1, results track largely in line with our expectations, with CNG down due to lower utility work and lower well site pricing. while propane was up modestly as operational improvements continue to take hold. Our share repurchases program continued during the quarter and has meaningfully contributed to our per share performance. Since prioritizing buybacks in the fall of 2024, we've repurchased approximately 14% of our outstanding shares as part of our commitment to enhancing shareholder value. Turning now to propane, operationally, while many of the pressures from the fourth quarter carried into the first, our team persevered. advancing or transformation efforts, while also going above and beyond for our customers. Our frontline teams, particularly our drivers, technicians, and customer experience representatives, operated under significant pressure through the early part of the winter, and I want to publicly recognize their efforts. Our team members are at the heart of our brand, and their passion for our customers makes anything possible. Coming out of winter, we've made significant progress in how we prioritize, plan, and execute our deliveries, to improve both efficiency and customer satisfaction, and we're feeling confident ahead of our next winter season, supported by better data, clear processes, and execution discipline. Importantly, we remain committed to our strategy, as our success depends on the ability to deliver to every customer safely, efficiently, and on time. As the weather warmed into March, we also made strong progress restoring customer tank levels to more normalized ranges. Moving through the year with healthier tank levels, supports more predictable routing, reduces emergency deliveries, and improves labor productivity, while still allowing us to maintain a lean cost structure. Overall, Q1 was an important quarter for the business. We tested many aspects of our operating model under very intense conditions. We had some significant successes and some learnings, which were informing our plans as we advanced the transformation of Superior into North America's most formidable competitor. Now turning to Ceteris, While Q1 profitability saw a decline versus 2025 due to reduced utility work and lower well site pricing, which, by the way, was fully anticipated in our guidance, I'm pleased to say that the team's efforts have had a positive impact on our organization, and we expect to resume quarterly growth beginning in Q2. Looking forward for Sataris, there are exciting times ahead. We've long said we believe in the future of over-the-road CNG and have purposefully pursued a strategy of geographic expansion and business development in new and emerging verticals. We planned on Soteris being their first and being the enabler of CNG adoption for all customers, big and small, in all geographies, with a responsive, reliable, and scalable value proposition across the continent. Since our last results release, we've seen the expansion of our total addressable market driven by the explosion in demand for behind-the-meter power generation for hyperscale data centers. The rapid growth in computing demand and the energy required to support it is outpacing traditional infrastructure expansion. Behind-the-meter solutions are a critical component in building and operating hyperscale data centers, and Soteris' delivered energy has emerged as a credible enabling solution. We're helping customers bring data centers online faster, with an energy solution that is both operationally reliable and financially compelling. Since last September, we've signed six data center contracts totaling more than $350 million in revenue, including a new contract we announced yesterday, which will be supported by the opening of our new hub in Salt Lake City, Utah. This momentum is changing the game for Soteris and proving the value of our continental coverage, as well as our track record of delivering energy safely and reliably. Now, 10 years ago, the boom in well site conversion to CNG created an opportunity for Sataris to grow from a small company to build scale and a vision to be the leader in delivered energy. This second wave of energy adoption behind the meter power generation is something very different. The scale of this opportunity is like nothing we've seen before. It's not taking place in a single market. It's across North America. And with each new customer we serve, We're building new hubs and the infrastructure to make CNG solutions available to other verticals from coast to coast. While the oil and gas boom brought truck CNG to life, the data center era will bring it to communities and businesses everywhere. In terms of outlook, well, it's early days. But a lot has happened in a short time, and we expect the world to evolve at a very fast pace. I fully expect our data center and industrial verticals to account for approximately 60% of our CNG business within the next 24 months, and this is just the beginning. Our sales funnel continues to expand at an accelerated rate in this and other industrial verticals. Looking to revised outlook and the capital allocation, the business is well positioned to meet its growth objectives this year. and we are increasingly encouraged by what lies ahead for Superior Plus in the years to come. Due to the progress we've made within propane, along with the expanding market for CNG, we're increasing our adjusted EBITDA guidance for 2027 from 2% to 5% growth over 2026. I want to be direct about something. We know our track record on guidance has been tested over the past few quarters, so you can appreciate the decision to revise guidance is not something we've taken lightly. The totality of the increase is the direct result of the contracted revenue we've secured within the data center vertical since our last update. This is a very dynamic market at the moment, and Soteris' ability to move incredibly fast, providing viable competitive solutions, is a testament to our strategy to truly be the market leader in delivered energy. It's also important to note that we have seen this as just the beginning. We've not included future opportunities or adjusted our growth forecast since our last review for 2027. These opportunities also mean we're investing in growth. We'll be increasing our planned capital investment for 2026, investing in new MSUs, tractors, and compression equipment as we expand our capacity to fulfill the requirements of this increased volume. Greer will cover these details more in the financial review shortly. And finally, on capital allocation, we've been disciplined buyers of our shares and remain confident in the long-term value they represent. As mentioned, since late 2024, we've repurchased approximately 14% of our outstanding common shares. However, as always, our priority is to allocate capital to the most accretive opportunities for our shareholders. While we continue to see exceptional value in our shares, the opportunity to invest in CNG at this time is extremely attractive and has compelled us to transition from share repurchases to new investments in CNG. We also want to be transparent about what this increased investment means for leverage. We will walk through the specifics, but at the high level, we expect leverage to move modestly higher in the near term before declining as contracted EBITDA flows through in 2027. We're comfortable with this trajectory given the cash generative and predictable nature of our propane business. So to wrap up, we delivered a solid first quarter despite a challenging backdrop. Propane continues to progress. As we modernize the business, and Soteris is positioned for meaningful growth. We're allocating capital to the highest value opportunities to support long-term shareholder value. And with that, I'll turn things over to Greer to walk through the financials.

Thank you, Alan, and good morning. It was a strong quarter for the business and a good start to the year. Our propane operations performed well, and Soteris is positioned exceptionally well to resume growth going forward. I'll start by recapping our financial results for the first quarter. Q1 adjusted EBITDA of $245.9 million declined approximately 6% compared to Q1 2025 as the decrease in CNG more than offset the increase in propane. Adjusted EBITDA per share was $0.91, an increase of 2% quarter over quarter as our lower share count more than offset the change in adjusted EBITDA. Adjusted net earnings per share of 68 cents increased 2% from last year for the same reason. We generated free cash flow of $188 million in the first quarter, about $32 million lower than the prior year quarter. Recall that Q1 2025 included a $20 million legal recovery and higher adjusted EBITDA. Turning now to the businesses, in Q1 adjusted EBITDA for U.S. propane was $158.7 million, down approximately 3% from last year. This decrease was primarily due to lower sales volumes as we continued to adjust to reduce delivery capacity as part of superior delivers, partly offset by lower operating costs. While we experienced cold weather in the quarter, it's important to note that Q1 2025 was similar in this respect and represented a strong comparative quarter. Adjusted EBITDA for Canadian propane was $55.9 million, up 14% from last year. This was primarily due to higher average margins resulting from strong market differentials, improvements in procurement, and the impact of a stronger Canadian dollar, partially offset by lower sales volumes. Our propane transformation, Superior Delivers, contributed $12 million in Q1, having positive impact on our margins and costs, as I just outlined. Overall, our propane business had a strong quarter and continues to track with our expectations for the year. Moving now to CNG, Q1 adjusted EBITDA of $38.4 million, was down approximately 30% compared to Q1 2025. which is aligned with our expectations and the range we highlighted on our last conference call. Again, this decline was mainly due to lower ancillary revenue from utility winter standby services and lower well site pricing compared with a year ago. Operating costs for MMBTU of $7.58 in Q1 increased 2%, primarily due to increased use of third-party trucking services, partially offset by reduced repair and maintenance costs. Our consolidated CapEx for the quarter was $26.6 million, roughly in line with last year and tracking within our expectations for 2026. For the quarter, corporate operating costs were $7.1 million, down roughly 3% compared to last year due to lower incentive plan costs. Our leverage at the end of Q1 was 3.9 times, down a tenth of a turn compared to Q4, reflecting the lower net debt balances partially offset by lower adjusted EBITDA. Compared to Q1 2025, our leverage increased by two-tenths of a turn, which is driven by lower LTM adjusted EBITDA. During the quarter, we repurchased 4.2 million shares, as Alan said, or approximately 2% of our shares outstanding. From the time of our shift to share repurchases in November 2024 to today, we have now repurchased approximately 34 million shares, or approximately 14% of the shares outstanding. This has been a meaningful driver behind our improved per share metrics. While we continue to see our shares as having compelling long-term value, we are pivoting our capital allocation focus away from share repurchases and toward high return growth opportunities in our C&G business and improvement in balance sheet flexibility. Our approach to capital allocation remains dynamic, and we believe this change will generate the highest long-term value for our shareholders. Moving to 2026 guidance, we are reaffirming our 2026 EBITDA growth expectation of 2% as the businesses are performing in line with our expectations. We expect Souterras to resume to growth for the remaining nine months of 2026, and the benefits the Superior delivers to our propane division will become more meaningful in Q4 of 2026. With respect to CapEx, as Alan mentioned, we are increasing our planned capital expenditures for 2026 as the opportunities for attractive returns in our CNG business have improved significantly. We now plan to spend $230 million in total CapEx during 2026 up from our previous estimate of $160 million. We expect leverage of around four times by year-end as we increase our investment and growth opportunities in our CNG business. It's worth noting we expect our leverage to increase into Q3 as the business builds working capital balances heading into heating season before coming back down into the year-end. Regarding our multi-year outlook, we are incorporating the new data center work Sir Terrace has recently been awarded The growth rate and adjusted EBITDA implied by our previous multi-year outlook was approximately 2% from 2026 to 2027. We now expect year-over-year growth of approximately 5% into 2027 as this new work begins to generate earnings. We will update our 2027 CapEx budget in February of next year, but at this point we expect CapEx to remain elevated at similar levels in 2027. to facilitate growth in CNG. With that, I will turn it back for Q&A.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Nelson Ng with RBC Capital Markets. Your line is now open.

Great, thanks. And congrats on the additional data center contracts. Just on the data center side of things, so am I thinking about it in the right way in terms of you're investing additional $70 million and you're getting an incremental 3% of EBITDA, which is like very roughly $14 million? I know there's a bit of rounding in there, but is that the right way of thinking about it?

Hey, Nelson, it's Greer. Yeah, so the CapEx, yeah, it's pretty clear. And then it looks, you know, if you listen to what I said, it's probably a kind of similar elevation of CapEx in 2027. It's a bit of a timing, like obviously the capital spent first and then, you know, the generation of earnings is kind of later. So you're right, the increase in 2027, but the majority of these jobs that we're procuring equipment for are not kind of up and running for the full year of 2027. And so, you know, when you look at, if you're trying to do kind of returns analysis and look at the earnings generation or EBITDA generation in 2027 and compare it to the CapEx, it's not going to give you a very good calculation because we really don't get into generating cash flow or earnings until the tail end of 2027. I see.

And I believe the targeted return is, is at least 15% for the data center business?

Yeah, I mean, you could assume that for sure. I mean, you know, we, as Alan said, we believe in the value in repurchasing shares. And so I think you could assume that, you know, for us to make the decision to shift away that, yeah, those returns would be at or better than that.

Okay. And then in terms of the one data center contract that was announced, last month that we'll be using about 200 trailers starting mid next year like from your perspective like what what to what degree are you adding new trailers to meet that uh to meet those needs versus reallocating uh trailers from lower margin sectors um hey nelson's alan um dale's on the line but uh

You know, he's going to want to comment on this. I think, you know, we're looking at, you know, the fleet in the context of not just that one opportunity we had, but, you know, the continued sort of opportunities that we've already closed and when they're coming online and then what we have in the funnel. But Dale, you probably have some comments on that as well.

Yeah, hey, good morning, Nelson. We haven't taken a final determination. We would expect there would be substantial addition to the fleet. We're currently working through a competitive process on equipment procurement. But demand for the existing fleet is good, healthy and firm now. And so as we kind of evaluate as the pipeline unfolds, we do expect to make significant trailer purchases. But we haven't determined that exact amount yet.

Okay. And then just one last question on, on Sotaris. So like a few years, if we look back, I guess three years ago when Sotaris was acquired, growth was really strong. Like a lot of capital was invested into the business to, to buy trailers and things slowed down, margins were compressed and I think CapEx slowed. And then now you're seeing, like due to data centers, you're seeing this new opportunity and you're looking to ramp up growth again. So I guess big picture, what's different this time? Like, will it last? Obviously, the contracts seem longer than the typical contracts at the well site. But can you just talk about how this time is different in terms of the growth prospects for Sataris?

Yeah, we're all going to have comments on this one because it's a great question. And you can imagine this is what we've been doing the work on over the last several months and why historically we haven't, you know, sent very strong signals of aggressive growth in this segment because we're waiting for it to unfold and it's unfolding obviously very quickly. The difference with the data center piece, I think, is we're at the very early stages of a much bigger era of adoption. And it's doing a few things. It's not just the displacement of diesel, it's really augmenting in a more permanent way, we think, the energy infrastructure. So you got that piece. The second piece is the geographic you know, diversity of the data center space and the adoption behind the meter power generation really opens up other markets for us. Because if you think about, you know, going in this, would we have been in Salt Lake City, Utah otherwise? Maybe, maybe not. But now we have the ability to start to aggressively ramp up other industrial, you know, opportunities in those new geographies. And the pressure that's being put on the energy space in general is really going to affect a lot of businesses, not just the data center piece. So when we talked about things like over-the-road trucking conversion to CNG-powered tractor trailers, well, the rollout of our network on the back of this opportunity in the data center behind the meter space really is a catalyst that makes that initiative a lot easier, and then the next one after that. So I think, you know, as I said in my opening comments, I think oil and gas gave us a foothold to be able to create a viable business and a proven business model, and this new era with data centers is really the catalyst that's going to see delivered energy be much more readily available across the continent. Now, Greer or Dale, you may have a comment on that as well.

Maybe just a couple quick ones for me. I mean, if you look at comparing it to oil and gas, Nelson, I mean, I think you've got – I know we'll see how this all plays out, but the life cycle of this and the volatility of this would be two pretty key factors, right? And I think we can all make our own assumptions on that. You hit on it. I think the fact that there are longer contracts – generally is what we're seeing is a big factor here. And when you look at how we do our returns analysis, and obviously the challenge with this is you're matching a very long life asset with generally shorter term, but this is way more secure in terms of the contracting. I would argue that you know, the volatility is different. I would argue that the life cycle is also probably different. We can argue with the puts and takes on that. But when you look at the discounting and how we look at like, you know, just basic DCS and that kind of analysis, obviously when you get out, if you can get contracting that, you know, goes out two or three years or four years, you know, the assumptions in the years when these units come off become a lot less sensitive to overall return analysis that you can appreciate. And so that's a big part of this, right? And it gives you a lot more certainty, and then, of course, you know, that really helped us in our conviction to determine that the return was sufficient to shift capital.

Thanks, Alan. I agree with all of that. The other thing that I might just highlight in terms of our Sir Terrace's advantage position to win in this space and be a preferred provider is really a testament to our team members. The experience and the talent that we have to engineer and rapidly deploy a new solution that involves showing up with the hub network, with the mobile compression, with the fleet, with the experience, with the engineering capabilities, that level of safety and reliability is really important to this customer segment. As the industry leader, we come to this space in a good position to be that solutions provider to help hyperscalers get their projects online more quickly.

Great. Thanks, everyone. I'll leave it there.

Thanks, Nelson.

Thank you. Our next question comes from the line of Patrick Kenny with National Bank. Your line is now open.

Thank you. Good morning, everyone. Alan, just back on your guidance of the CNG business becoming 60% industrial data centers within the next 24 months, I just wanted to confirm if that assumes any further attrition within the well site segment, or are you assuming pretty stable, call it flattish, contributions from oil and gas customers? but just incorporating the growth from industrial and data center deals.

Hey, Pat, thanks for asking that. That's on my mind a lot, and it's something we talk about. To be very candid, we've had this strategy of maintaining our share in the oil and gas sector, and that was quite purposeful. I mean, it's a great business, and by its very nature, it's cyclical. And, you know, when you're in the downward trend, tranche of the cycle, you think, well, what a great opportunity to reallocate your fleet somewhere else. But we see the oil and gas segment as having longevity, and that's the last thing we want to do is start to wind down or to look for alternatives at the downward end of a cycle, because we think it's going to return to better days. So we want to maintain our foothold in that space. So this is really about new customer or new expansion as opposed to reallocation. The second thing I would say is the numbers I gave are reflective of where the oil and gas sector is now. Nothing would make me happier than to be wrong because we've seen a material rebound in completion activity, which caused us to have different economics and different demand cutting of that sector. So I think to get to the heart of your question, no, we're maintaining our presence in the oil and gas sector and intend to do so going forward.

Got it. And then I guess on the propane side, I mean, California appears to be short refined products here just given the the conflict in the middle East and, and lack of supplies coming in. Just wondering if you're seeing any incremental margin opportunities on the propane side, either wholesale or otherwise, um, which might represent some tailwinds through the back half of the year.

Nothing so far. Um, obviously our, our wholesale team is, is, you know, and these things move at a different pace than the new cycle, as I know you, you already know. Um, it's going to take a little bit of time for that to, uh, to come to the fore. California is a net exporter, traditionally, of propane during the summer months and an importer during the winter. So we're keeping a really close eye on it. And we've got a great presence in our wholesale business in California. So we're continuing to be engaged. As it stands right now, we're not forecasting any tailwinds going into the back half of the year as a result of it, though.

OK, great. And last one for me, if I could. maybe a bit more color on, on the hub being set up in Utah and kind of the, the overall opportunity set there. Um, what you're hearing from customers in the area, just in terms of, you know, their access to gas supplies or, or power, um, from the grid, you know, how are you seeing this geographic market developing over the next, uh, you know, few years?

Yeah, that's, that's a great one. And I want to, uh, I'm going to Dale's best person to answer that question, but I do want to qualify something I said in my prepared remarks, and that each data center, I said with data center opportunities, we're opening new hubs. While that is generally true, it's not linear. I mean, it's not a one-to-one. Just because we have a data center contract doesn't mean necessarily we're going to open a hub. Some will be served from existing hubs, and some will be insufficient to warrant that type of an expansion. But with that clarification, Dale, maybe you can talk a little bit about what you're seeing in Utah.

Yeah, good morning, Patrick. This is consistent with the strategy of growing the industrial business. C&G is a very competitive solution for not, you know, behind-the-meter power projects and other types of data center applications, but other industrial users. And our ability to serve and proximity to serve is really essential to the value proposition. And so the Having a large award such as the new 60 megawatt data center in the Salt Lake City area really provides a nice base load volume to establish that local supply point near that market. And there are other opportunities that we expect to be able to add to that business once as we get that local supply point established this month. And it's a growing market, and just the continued demand for energy outpacing the ability of infrastructure projects to come online presents a great opportunity for us to be in that market and be able to offer the capabilities and kind of fast, flexible energy solutions those customers are looking for. So we've got a good outlook for that one and are excited about it, and it is part of the the strategy of expanding the business to industrial customers, and we'll do it in other markets soon.

Okay, that's great. I appreciate all the color. Thank you.

Thanks, Bob.

Our next question comes from the line of Robert Cotelier with CIBC. Your line is now open.

Hey, good morning, everyone. Just to follow up on the data centers, I was wondering if you could tell us about the margin structure for the data center contracts. What risks have you agreed to and what risks have you been able to transfer to the customer?

Well, that's a great question. And hey Rob, it's Alan. I'm going to be diplomatic here for obvious reasons because that touches on some fairly sensitive stuff that we aren't sharing publicly. What I would tell you is that our strategy for all of our customers, it's incumbent upon us to make the investment to deliver their energy safely and efficiently. So we've long had a history of building an attractive value set, a value proposition that does that. We provide the compression, the decompression, the trucking, and have pretty firm commitments when it comes to delivery, uptime, safety, and things like that. What we tend not to do is stray outside of our core competency, things like taking risk on energy prices or anything like that. So we've had a history of sticking to what we do well. We don't lease the MSUs or operate other people's. We have our own. But we also don't stray into other areas that are in our core business for opportunistic purposes because, frankly, it's not our core competency. And I can give you all the assurances in the world that our data center opportunities are very consistent with our historical approach to how we've managed our contracts. Now, Dale, I don't know if you'd want to add any further color to that.

That's all well said, Alan. Our envelope is to compress the gas and deliver the gas so that we'll be responsible for our scope of work. Obviously, we won't go into, you know, specific details on specific contracts, but Alan summarized it well.

Okay, that's helpful. And then just when you look at the opportunity that's in front of you and the cadence of contracts, you know, how does that, how is that going to work going forward between contract, CapEx, and then contributions? So, for example, Should you be fortunate enough to secure contracts throughout the rest of 26? Could we reasonably expect additional contribution to EBITDA in 2027? And I'll have one follow-up after that.

I think so. I mean, I'd love to give you a crisp answer, Rob, but as I said in my prepared remarks, this is all happening really quick. And we've got a There's a bit of a variety of customer types. We have new construction builds like the large hyperscale data center we talked about that are going to be some upfront capital with a longer contract and visibility into sort of three years of production. And then we've got data centers that are up and running that require energy augmentation because their capacity to produce energy They've grown beyond and they need to augment that with some truck energy. And then we've got some smaller projects. So there's a combination of smaller projects and larger projects, first of all. And with all of those, they're coming on at different times. So we're expecting to continue to see some smaller opportunities come in in the next 6, 12, 24 months. And then, you know, I'd be surprised if there weren't larger opportunities in that timeframe, although we have a lot more visibility to those in the longer term. So, you know, we're going to continue to do what we do, and that's, you know, allocate the fleet in the best way that we can for opportunities that make sense financially. And with the longer-term projects, like the one we announced a month ago, we're going to have more visibility, and when we have it, we'll be able to share it with all of you. I'm not sure if that answers your question or not, but I'm happy to clarify anything.

Yeah, no, it's going to depend on the type of work you want. But that does lead me to the next question here. There's at least a possibility that you have additional growth here of size. So I'm curious, you know, should that materialize? What flexibility do you have if that accelerates faster than anticipated? I'm thinking about the balance sheet here, of course. Under what circumstances could your leverage targets be revisited to accommodate a faster pace of growth? Or in that case, would you lean more on redeploying parts of the existing fleet?

Well, I think at that point, I mean, it's a good problem to have. I mean, at that point, you've obviously put everything on the table. We haven't had any discussions about revisiting our leverage at this point. With the fullness of time, we anticipate having enough visibility that we're able to be creative in how we capitalize on these opportunities. In an ideal world, you would continue to grow the business because you'd rather have net new infrastructure than reallocation, but you also have to work within the constraints of being responsible on the balance sheet that we have today. More to come on that, but anything sort of material, I think we're going to have some pretty good runway in terms of timing and how we fund it.

It's a good question, Rob, for sure. I mean, really, this depends on the quantum here, right? I mean, this is really, you think even in the last six months, has changed quite drastically in terms of the opportunity to grow this business. It's quite remarkable. You know, one of the reasons to shift the capital allocation, I mean, the business generally propane and CNG, like we generate a lot of it done and a bunch of cashflow and like this, the shifting of the cashflow away from Sherry purchase is a big part of this, right. To be able to finance the growth, but it's really a question of just how big is this going to be? Um, you know, and it's, it's relatively early, I think at this point to tell that certainly we can finance a lot of this growth through the cashflow in our existing business. and we'll just see how big this is.

Yeah, I think it's going to come down to how fast you want to grow. We can certainly fund pretty substantial growth, and then the question will be, well, do you want to be able to grow even faster than that? Lots of solutions to be able to think about in that respect.

Okay, that's very helpful. Thank you.

Thanks, Rob.

Our next question comes from the line of Gary Ho with Desjardins Capital Markets. Your line is now open.

Thanks. Good morning and congrats on the data center announcements. Alan, just wanted to clarify first, you know, these multi-year contracts, they're still not permanent in nature. So they are multi-year, but they're used to get data centers up and running for early commissioning before they get connected to the grid. And then second, like what's the opportunity set here? How's the RFP pipeline conversations going? And do you see this perhaps is a bubble in terms of data center build-out near-term, or do you see this continuing over the longer-term horizon?

Another great question. It's interesting because on the face of it, it's not hard to cobble it together, a couple of facts that tell you this is a bubble. When we're looking at it, Let me talk first specifically about our investments, and then I can talk to you about the general market. In our investment, we factor all that in, and of course, we're doing the responsible thing and making sure that the capital investment in the business we're signing up for is in the best interest of the company and our shareholders, and we're not putting ourselves in a position where we're going to be in a place where we think we're going to have excess capacity. So I can say that right out of the gate. In terms of the the longer term attractiveness of this space and the bubble comment. I think that there's going to be, it's very, very early days, which is a good thing because it's not like we're halfway through the evolution of the data center build out and we're now seeing opportunities. So we're really at the, in my mind, the first inning of this and Soterios is becoming a material partner. We originally were a little bit shy to put this at top of our mind for our thinking because we anticipated that the Greenfield data center sites would be co-located with gas and power resources more than sufficient to satisfy their demands. What's kind of evolving is that the real estate requirements for these data centers is so significant. that they don't necessarily have the luxury of being able to co-locate with the energy supply that is required. You're looking at some of these data centers occupying anywhere from 500 to 1,500 acres of land. The second thing is that the value proposition in data center management is so substantial. If you think of the cost of the CNG in a completion operation versus the cost of a CNG in a data center operation, it's chalk and cheese. It's such a small part of their total overall kind of revenue stream or cost compared to the opportunity that there's a very compelling financials to move these data centers forward and be creative in terms of how you generate the energy. So we think that gives us the combination of being very early days, just the sheer size of this gives us a really optimistic view. And then the last piece is this is the catalyst that helps us very financially efficiently grow out our network and start to augment our capacity and expand into other verticals like refueling and so on. If I thought this was going to be short-term in a bubble, we probably wouldn't have made this investment, to be perfectly honest.

Okay, great. Thanks for the additional color there, Alan. And then my next question, perhaps for Greer, Just on that MSU deployment, sorry if I missed in your comments. So 70 million increase in capex this year. Did you say there's an additional similar 70 million so far for these contracts that you've won for 2027? And then perhaps for Dale, do you see an issue in getting these MSUs purchased and delivered to you? And has pricing for MSUs changed since maybe a couple of years ago? I think it has been probably less competitive. Just wondering how the pricing environment is.

Sure. Well, Gary, it's Greer. I'll go really quickly. I think you've understood it right. The contracts that we've seen so far That's what's driving the increase in CapEx guidance for this year, and it's a similar delta for next year to satisfy the equipment requirement for those contracts. So, yeah, you got it right.

Hi, Gary. The only thing I might add, I'd say the equipment manufacturers, whether we're talking about trailers or the other ancillary equipment manufacturers, to to expand our business compression etc are really excited about this new source of demand and you know i think you had it right there was a lot of demand for the equipment a couple years ago and and then you know for for over a year the the industry has been kind of working through sort of a leveling off period as you know there wasn't as as much growth in the well site market in 2025 and i And so what we're doing is we are running a competitive process with equipment manufacturers. The thing that we have on our side is the real pull on equipment will happen in 2027. And so that allows us to collaborate in an orderly process to kind of scale up, whether it's componentry, procurement. you know, labor schedules, et cetera, to ensure that we are optimizing from a unit cost standpoint. But, yes, having a new end market and a new demand for the types of equipment that we use to support our operations is something the equipment manufacturers are excited to participate in, and we feel good both about, you know, being able to meet cost and schedule targets to deliver these projects and incremental growth.

Okay, great. Thanks for all of that. Those are my questions. Thanks, Eric.

Our next question comes from the line of Daryl Young with Stifel. Your line is now open.

Hey, good morning, everyone. Just wanted to flip gears to the propane side. Sounds like the delivery route optimization has stabilized and things are functioning much better. Is there anything you can do across the summer months, because we're obviously going through the seasonally slow period, to just continue to test and solidify that the system can operate come next spring at scale? Or sorry, next winter at scale?

Yeah, yeah. Hey, Daryl, it's Alan. Yeah, yeah, absolutely there is. I mean, we're coming from a pretty significant deficit of real-time insightful data that was a big hill to climb for us over the last couple of years. And today we're in a much better position to have visibility into the fleet into the driver contingency we have into the types of customers. So all of that gives you a lot of clarity that we didn't have before. So that's a real big plus for us. And while there's some noise in the summer months, the drops are a little bit smaller, obviously, and you don't have the consumption that you have in the winter. We look at it, we're able to adapt our model sort of for a summer view. And of course, we fluctuate our driver staffing too. So said really plainly, it's about almost replicating winter conditions with how you're loading trucks and how you're devising routes so that you're able to, year over year, look at the level of efficiency that's being contributed by the model versus your older way of doing it and almost forcing that efficiency despite the demand.

And then in terms of the customer churn dynamics, I know you've been doing a lot of work on that front, but what kind of proactive measures are you putting in place to prevent the tail risk come next winter? Because I know we've always talked about customer churn being a sort of one-year delay type problem. So how are you feeling about customers that maybe had a challenging winter this year and might be at tail risk come next winter?

Well, I'm feeling really good about it. You know, I would have said to you guys, two years ago, we didn't have a churn function, really. It was just something that was done organically through the organization, which we've changed pretty dramatically. And when you have a winter like we did, even if everything goes swimmingly, you're under pressure. There were regions across North America where propane was being distributed on an allocation basis, so we weren't able to to get all the fuel that we would otherwise normally like to get. There were lots of areas that trucks had to be off the road for two or three days at a time, which creates all kinds of havoc because with a lot of customers, especially in the well call, they're nearing empty and then you have to take your trucks off the road for two or three days. That creates problems. So in a winter like this, there's always issues. Of course, ours were complicated a little bit by all the changes we're making. But what we did proactively and with our new chief commercial officer, Dina Piquion, had done a great job of actually developing a whole strategy around customer engagement and retention. And I would say the two biggest things that we did that we're really happy with is proactive outreach. So customers that may have had service interruption for a variety of reasons, we proactively reached out to them. to explain the situation and express our concern and a reassurance that that wasn't going to happen again. And the implementation of some retention incentives around customers that had a particularly challenging winter along with our no run out guarantee has really minimized the impact of a tough winter relative to what the risk could have been. And for that reason, I'm pretty optimistic going into the rest of the year.

Got it. Okay, that's it for me. Thank you.

Okay. Thanks, Jerome.

Our next question comes from the line of Ben Isaacson with Scotiabank. Your line is now open.

Thank you very much, and good morning. Most of my questions have been asked. I just have two or three quick ones. Can you talk about the payback time to earn the minimum income return on acquiring MSUs in advance of these data center contracts. Is the full return earned with the contract or is there risk that you need new contracts to complete the return of the deployment of capital to make the acquisition?

Hi, Ben, it's Greer. As you can probably appreciate, we're going to be a little bit cautious about getting really specific about economics on these contracts. What I would say is that, of course, the length of the life of these assets is quite long. And the contracts that we're seeing in the data center world, as I said earlier, it's a lot longer than some of the traditional ways that we've used these. But I think that the economics won't be completely guaranteed by the initial contract, but I think it gives us a huge amount of confidence on receiving adequate economics. As I said, when you get through to the other side of most of these contracts and you're two years in or three years in, the value of those cash flows to determine your DCF, they become way less valuable. Whether you can redeploy them and it might take a year to redeploy them or two years to redeploy them or the economics are you know, 10% better or 30% worse. Because it's so far out, it has less impact on it. And so that gave us a massive degree of confidence that we'll receive adequate or better than adequate economics. But as I say, I think like getting really specific about, you know, do you receive the full return and how much risk is on the tail end? I don't think we're going to be at liberty to share all that stuff. It just is too sensitive.

Yeah. Okay. That's fine.

And I would, the only thing I'd add to that is, Our track record over the last couple of years of being cautious with capital and if you look at our sort of winding back our investment in additional MSUs or capital equipment in the oil and gas sector, specifically as we saw some margin compression, that is a proof point that we're cautious in terms of any expansionary investment and we use the same caution in this deal.

Thank you. My second question is, I know the sample size of data center contracts that you have available is small, but is it possible to describe whether the margin profile is different? Meaning, is it bigger and is there less volatility to the margin when compared to well site contracts or is the inherent volatility really the same?

So Dale's got, Dale have an opinion on that, but the short answer is yes. Yes to your first part that it's materially better and it's not as volatile. But Dale, go ahead.

Well, as you noted, Ben, it's early days and we have a unique capability just in terms of the experience and the scale and the speed at which we can deploy. And so we're highly motivated to – and these are really valuable projects, as you know. I mean, as Alan referenced earlier, the value of the enterprise revenue to get these megawatts online sooner is really important to the people involved in these projects. And so if you can be part of that solution – that's valuable. And so that, you know, it's our team's, you know, talent and experience and ability to kind of safely and reliably operate these that sort of puts us in a differentiated position to serve this market. And so, you know, when you have, you know, differentiation in the ability to bring a solution that others can't, you know, certainly, you know, that's creative from a margin standpoint.

Great. Thanks. And then just my final question. You talk about how the return is not fully there on the MSUs being acquired for the contracts that have been signed. And your confidence, I think, Alan, you said that you're quite confident that we're in the first inning. How do you know we're in the first inning? I mean, how do we know that this whole trend and theme isn't over in three or four years? and the returns aren't fully captured by the incremental MSUs that you're buying.

Well, there's two questions there, I think. One is the economics of the deals we've been signing, and at the risk of being a little vague, so forgive me, I have no concerns about our ability to make those accretive. In terms of how do we know it's not over, I think if we look at the... the sort of lead indicators, data center demand is continuing to grow, not just from a supplier standpoint, but also from a user standpoint. So the data centers we're working with already are ramping up their capacities faster than they had originally anticipated they would. And then when we look at the sort of construction and management side, we're seeing more and more activity around you know, companies coming in that are planning data center projects. And quite frankly, I think part of the frenzy is the ability to get data center projects to find the land and the energy to actually bring them forward along with what potentially, you know, could be other obstacles like delays in power generation equipment timelines. So we're seeing more bottlenecks than we are a tapering of demand at this point. And it's really important to note these are long-term projects. These aren't projects like well site completion that might be six weeks in duration. These are decades-long projects. And the money that's being invested is not in the hundreds of millions. It's in the tens of billions. So you can rest assured that everyone involved in making these decisions has a pretty long-term view.

Great. And then actually just one more question. You pulled free cash flow, your free cash flow target for next year, but you provided more certainty on EBITDA. And so is the gap between providing more clarity on EBITDA and less on free cash flow, is that because you're unclear about the share count or how much CapEx is going to be going towards MSUs? And so what's actually going to be free cash or the conversion rate, or is there something else?

Yeah, no, there's nothing more to it. I think it's more just, obviously, this is just tying back, Ben, obviously, to our investor day where we communicated a number of targets. And really, it's just to get a little bit simpler. Obviously, free cash flow has got a whole bunch of different things in it. And the two biggest things here, really, we think are CapEx and EBITDA. And so we're just kind of trying to be more simple with it. That's all.

Okay. Thanks so much. That's all I have.

Thanks, Ben.

Thank you, and I'm currently showing no further questions at this time. I'd now like to hand the call back over to Alan McDonald, President and CEO, for closing remarks.

Thanks, Operator, and thanks everybody for joining the call today. We threw a lot at you this quarter in terms of the performance of the business and some changes to our outlook, but also It's always a great opportunity when you're trying to quantify an emerging growth potential or potential growth opportunity for the business and getting that right balance of being as transparent as we can with all of you with what we know today. But what I will tell you is in my tenure here, I've not seen opportunities at Soteris that rival anything close to where we are now. the dynamic nature of the space that we're in has just been fantastic. And Dale's point about the, you know, Soteris' value proposition, these are very, very different projects than what we would traditionally be up against. If you think about, you know, assembling a fleet of 200 MSUs in a new geography for, when I say mission critical, I mean absolutely mission critical operations like a hyperscale data center, I'd like to believe that there's not a lot of companies that have our reputation and can mobilize at the speed that Dale and the Satara's team did. So we're really, really excited about what the future looks like for us, and hopefully we'll have more news for you to come in the next few quarters. With that, thank you all very much for joining us, and we'll talk to you again soon.

This concludes today's conference. Thank you for your participation. You may now disconnect.