Luc Desjardins - President and Chief Executive Officer Beth Summers - Senior Vice-President and Chief Financial Officer Rob Dorran - Vice President, Investor Relations and Treasurer

Steven Hansen - Raymond James Nelson Ng - RBC Capital Markets Fahad Tariq - BMO Capital Markets

Well, thank you and good morning, everyone, and welcome to Superior Plus conference call and webcast to review our 2017 second quarter results. I am Luc Desjardins, President and CEO.

Joining me today is Beth Summers, Senior VP and CFO; and Rob Dorran, VP, IR and Treasurer. For this morning call, Beth will start by providing a high level review of our financial results for the second quarter and an update on our financial outlook.

And then, I will close with an update on strategic initiatives including our business development activities accomplished this year. I would like to highlight the settlement with the CRA announced last week, which enables us to keep a significant portion of our tax pool and doesn't impact prior year's or 2017.

We also anticipate to receive a $33 million we have paid to the CRA and related provincial agency with the next – within the next four to six months. In the second quarter, Superior delivered 45% increase in adjusted EBITDA and 58% increase in AOCF per share, compared to quarter two 2016.

The strong improvement in the chlor-alkali business helped offset the weakness experienced in the Supply, Wholesale and Supplier Portfolio Management segment of our propane distribution. Now let me turn the call over to Beth.

Thank you, Luc, and good morning, everyone. Before I begin, I'd like to remind you that some of the comments made today may be forward-looking in nature and are based on Superior's current expectations, estimates, judgments, projections and risks.

Further, some of the information provided refers to non-GAAP measures. Please refer to the second quarter MD&A for further details on forward-looking information and non-GAAP measures.

I would also like to encourage listeners to review the Management Discussion and Analysis posted on SEDAR and on our website yesterday, which includes financial information for the second quarter, as we won't go over each financial metric on today's call. This will allow us to move more quickly into the question-and-answer period.

Overall, we are pleased with the second quarter results. Consolidated adjusted operating cash flow or AOCF, per share before transaction and other costs was $0.19 per share, which was 58% higher than the prior year quarter, due to a decrease in realized foreign currency hedging losses, an increase in EBITDA from operations, contribution from Canwest and a decrease in corporate costs, partially offset by increased interest expense.

Turning now to individual business results, Energy Distribution EBITDA from operations for the second quarter was $12.8 million, compared to $16.9 million in the prior year quarter. This is a $4.1 million decrease.

This decrease was due to lower gross profits in the Canadian Propane Distribution business, partially offset by lower operating expenses and modestly higher growth profit at USRF. Canadian Propane Distribution gross profit decreased $8.7 million, driven primarily by the negative impacts of the supply markets’ fundamentals in the Canadian propane market and sales mix.

Average retail margins were consistent with the prior year, while overall margins decreased to $0.17, reflecting the impact of the weaker supply market fundamentals. Sales volumes increased 28 million liters, driven primarily by higher wholesale volumes, as we continue to see the benefit from our sales and marketing initiatives focused on selling more propane and butane to third-party customers.

USRF gross profit increased $2.1 million, primarily due to higher average unit margins, partially offset by lower sales volumes. Sales volumes decreased 55 million liters, primarily due to a decrease in wholesale volumes related to sales and marketing initiatives focused on more profitable wholesale business.

Average unit margins increased $0.022 per liter, compared to the prior quarter, primarily due to sales mix and the impact of the stronger U.S. dollar.

Cash, operating and administrative costs were $74.1 million in the second quarter, a decrease of $2.3 million, compared to the prior year quarter. Operating expenses in the second quarter were lower primarily due to the benefit from the restructuring activities undertaken by Superior in Q4 2016.

This is partially offset by the impact of the stronger U.S. dollar on U.S.-denominated expenses.

Superior Energy Distribution EBITDA from operations for 2017 is anticipated to be consistent to modestly lower than the 2016, primarily due to the negative impacts from the supply market fundamentals in the Canadian Propane Distribution. Turning now to Specialty Chemicals, EBITDA from operations for the second quarter was $28.4 million, an increase of $6.1 million, compared to the prior year quarter.

Sodium chlorate gross profits were modestly lower due to an increase in production costs, offset in part by a slight decrease in sales prices and volumes. Sodium chlorate sales volumes and prices were 2% higher than the prior year quarter.

Chlor-alkali gross profits were higher than the prior year quarter, primarily due to an increase in sales volumes and an increase in netbacks. Hydrochloric acid sales volumes increased 35%, primarily due to higher oil and gas drilling demand in the U.S.

In caustic potash, sales volumes increased 20%, primarily due to higher demand from the Agriculture sector. Caustic soda netbacks increased 25% due to higher North American demand in exports from the U.S.

Gulf Coast. Operating expenses were $34.8 million in the second quarter.

This was an increase of $1.5 million, primarily due to higher distribution costs. As we look to 2017, Specialty Chemicals EBITDA from operations is anticipated to be higher than 2016, primarily due to the continued chlor-alkali recovery.

Lastly, to corporate results and the consolidated financial outlook. Canwest Propane contributed EBITDA of $2.8 million for the second quarter and corporate costs were $1.8 million lower than the prior year quarter, primarily due to a decrease in long-term incentive plan costs related to Superior’s share price.

Realized losses on foreign currency hedging contracts were $6 million lower than the prior year quarter. This is due to the settlement and reset of hedges during Q3 2016 following the sale of our Construction Products Distribution business.

Interest expense was $1.7 million higher than the prior year quarter on increased average debt levels. Debt levels were higher due to the Canwest transaction including the issuance of the senior unsecured notes in the first quarter.

For the 2017 financial outlook, we are confirming our AOCF per share guidance of $1.50 to $1.75 per share. Please note the 2017 financial outlook excludes the impact of any estimated synergies from the Canwest transaction due to the anticipated closing in the second half of 2017.

On the debt management side, at June 30, 2017, the total debt-to-EBITDA – adjusted EBITDA leverage ratio was 3.3 times, which is above our long-term target of 3 times. For December 31, 2017, we anticipate debt to adjusted EBITDA to be in the range of 3.2 times to 3.6 times.

I will now turn the call back over to Luc to provide an update of our acquisitions and an outlook for the remainder of 2017.

Thank you, Beth. Since our first quarter release, we have been focused on our tuck-in acquisition strategy, of course, and on April 20, we acquired Pomerleau Propane Gaz, a small propane distributor service very high-quality residential and commercial customer in the Southeastern part of the Quebec.

On August 1, we closed the acquisition of the Yankee Propane and another operation that they had on Virginia Propane to expand our footprint in the U.S. market, especially in the east.

These acquisitions demonstrate our commitment to the Evolution 2020 strategy to grow the Energy Distribution business through tuck-in propane acquisitions to leverage our solid operating platform and achieve operating cost efficiency. Our pipeline of acquisition opportunity, especially in the U.S., is very robust.

On the Canwest transaction, we continued to work through the regulatory approval process and anticipate closing in the second half of 2017. We have a dedicated team focused on integration and they are working on the planning and strategy to deliver on operational cost efficiency.

We still feel extremely good about all of those synergies. Turning now to the individual business unit outlook, for Energy Distribution EBITDA from operations for 2017 is anticipated to be consistent or modestly lower than 2016, mainly due to the wholesale and procurement part, which we can explain in more on the Q&A.

EBITDA from Canadian Propane and U.S. Refinery Fuel business should benefit from ongoing operational improvement and sales and marketing initiatives.

Gross profit in the Canadian Propane business anticipated to be lower than 2016, as increase in volume anticipated to be offset by lower average margin due to the weaker base differential and market fundamentals in wholesale and our procurements. Gross profit in the U.S.

Refined Fuel business are anticipated to be modestly higher than 2016 due to an increase in average unit margin, as we focus on more profitable business, partially offset by the warmer weather experienced in the early part of the first quarter 2017 and a decrease in the lower margin wholesale oil business that we are getting slowly but surely just to offer good quality profitable business. Cash operating costs are anticipated to be consistent with 2016, as higher volume-related expenses are expected to be offset by continuous improvement initiatives.

Average weather, as measured by degree days, for the remainder of 2017 were forecasted consistent with five year average period and for Specialty Chemicals, EBITDA from operations for 2017 is anticipated to be higher than 2016. Sodium chlorate EBITDA is anticipated to be just modestly lower, as improvement in pricing are expected to be offset by a modest decrease in sales volume and increased production costs related to expected some of our planned electricity rate, but very fortunate that our large Quebec plant in Valdosta, the increases are almost nil.

Chlor-alkali adjusted EBITDA is anticipated to be higher than 2016, as you saw in the first half of this year, due to the continued improvement in the chlor-alkali markets. Our outlook also incorporates ten months of contribution from Canwest.

To wrap up the call, I would like to highlight the work we have done in 2017 and how it's aligned to our Evolution 2020 mandate. We are seeing great success with our additional M&A focus and resource in the Energy Distribution business to identify and execute on propane acquisition in Canada and in the U.S.

part – east part of the U.S. and nearby regions.

We have been primarily focused on tuck-in acquisitions in the Energy Distribution business, but I have also seen some additional opportunity to acquire chemical business as well. We anticipate closing at least four tuck-ins in 2017, which is on the high-end of our aspiration for the tuck-in strategy.

We had said two to four, and it's at least going to be four. Operationally, we are focused on the digitalization strategy in leveraging our strong platform in Energy Distribution business.

We have ordered and will do a major additional tank sensor and operational improvement, which are anticipated to improve our delivery efficiency and customer service and of course, lower our price – our cost of servicing. We have also made a 1% improvement in our trailing twelve months operating expense in the business to gross profit ratio at the North American Propane business.

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

Yes, good morning guys. I am just hoping you provide a little bit of additional clarity on how you see the regional arbitrage situation working out as the year progresses here?

And how that should impact the Supply Portfolio Group whether you see this temporary or longer term?

Very good question. I first like to say that for our U.S.

business, all the segments that we sell, that we're really getting to be a larger just propane business, and in Canada, our end-markets by segment, those prices are stable. So the Wholesale business, there has been arbitrage from the west to ship in the east to Sarnia.

Sarnia price has come down and Western Canadian price of propane has come up. Those variants really always happens quarter-to-quarter.

They are usually not as big as what we've seen in the past quarter. So, it could change.

We anticipate what happened in the first six months to continue for the next six months from a forecast point of view. But let me say that that changed very rapidly.

We are not in control of that. We buy propane and if the arbs gives us a chance from West Canada to ship East, and we make a better margin doing that.

We will go back to do that. But for the moment, that has disappeared.

So, to anticipate, we did forecast – okay, this is what happened in the first six months. Let's assume the world doesn't change on that for the rest of the year.

The world can change and it can change fast. Cold winter and people that are aggressively fighting on the price in the East could change their way, or their approach to go to market and that will change that, of course.

So, end-market, all propane Canada, U.S., good, good, good. The growth in the margins, this particular procurement size – side varies and usually varies a bit, $1 million here or there.

This is a bigger variance. We don't know how far and how long it will last.

It was not anticipated and it could turnaround fast. So I think that we are ...

Yes, Luc, I think what I just add to that is, we are seeing some of the pressure on that arbitrage opportunity sort of moving into Q3. So currently, as Luc mentioned, we're expecting it could be somewhere between further downside risk of $3 million to $5 million That being said, as Luc also mentioned, I mean, the market can change and quickly depending on what happens with demand in the East, depending on the weather, et cetera.

Okay, that's very helpful, thanks. And then just, maybe Luc, I think, you described the opportunity, the M&A opportunity that is or your pipeline is very robust in the U.S.

and just trying to understand, perhaps, why the opportunity might be more robust in the U.S. versus Canada?

Whether it's a competitive issue that's improving on that front or it's just the size of overall markets? Just any context there would be helpful.

Yes, thank you. Big picture, you remember, I've always said, it was difficult for us to find add-on acquisition these days, the three MLPs in the propane world, which – the three that are public, there is a fourth one actually, NGL.

Those companies are being adding their share of difficulty and look at their results in the states, they are better. So we are operating always to be efficient and invest in technology and invest in productivity and that has – so those particular three large MLPs, because of their cash flow and the dividend or the last two years being warmer than average having their share of difficulty and they're public companies.

You can all read about them. Then that’s kind of opened the door to us.

We were planning to do some anyway. We've hired, as you remember, a new President in the states came from AmeriGas, very good operator and then he became M&A for AmeriGas.

He is now is our President in the states. We hired people on the floor that goes visit companies that are independent and special gentlemen that is well-known and well-respected in the industry.

We now have a solid shopping list. And we are pretty much are, so far, pretty much alone in the game of doing that.

So we are not – we didn't want to pay the price that the MLPs were paying and that came down somewhat. So we are like very pleased that, well, the door is open now.

We didn't want to go crazy and overpay in the past. So we didn't play too much in the game.

Now that we are really becoming just very highly secured propane company in the states. We have competitors that were acquiring business and rolling them in that have their own difficulties.

So that's not happening from most of them and now the door is open and we are really marching on aggressively.

Very helpful. Thanks.

Okay.

Great, thanks. Luc, just a quick follow-up on the M&A question.

So you mentioned that pricing has been coming down. So, could you just give an indication of - I guess, valuation from an EBITDA multiple perspective?

And I guess, in the past, you mentioned that, you would see about a one turn improvement in data synergies as well?

Yes. So, when you look at the scale, U.S.

company propane, good scale being five plus million EBITDA, you’d probably be paying around eight times. When you go down to $1 million or $2 million EBITDA, the add-on of that particular platform, you will be paying less, let's say, $6 million to $7 million.

And then, if you combine the larger one with two or three that are smaller surrounding that large one, then your multiple comes down at least one turn. That's for the U.S.

market. Canada, we've done a few acquisitions and when we pay on the – a bit more, because [Indiscernible] is so clean, so nice and they have that market well-organized.

We are paying in the seven times and then, looking at our total company buying in our footprint in Canada, we can bring that down one turn, one turn and a half.

Okay, got it. Just a quick question on the CRA settlements, it seems like a pretty good outcome.

Could you give any more color in terms of, I guess, how much of the tax losses have to be written off? Where are you guys from that dollar transaction back in the day?

Yes. Nelson, I mean, the specifics of the settlement are confidential.

But what we did provide in the note to the financials and in the MD&A, the losses that we have remaining now after the settlement, compared to what they were sitting at, at December 31.

Okay, great. I'll look at the notes.

Okay.

And then, just one last question.

I think that on the Federal Tax, I don't think we are going to pay tax till what, 2023?

Yes, from a forecast perspective, based on how we are looking at the business moving forward in 2020, we are estimating that we will be taxable from a provincial perspective and then not taxable from a Federal perspective, based on all of our current assumptions, et cetera, until 2023.

Yes, pretty good.

Okay, yes, sure. And then, okay, just moving on to the Chemicals side.

So you've seen a lot of strength on the chlor-alkali part of the business. Are you seeing any signs that that part of the business is kind of leveling off?

And do you see any slowdown or a potential slowdown coming around the bend?

We have not and I think the main reason is, think of our big plans in Port Edwards, Wisconsin, we really are selling those assets to the USA more. So, Canada, not really taken off that much, but U.S.

has. So, we see that continuously.

First quarter was kind of nothing much and it took off and then we see now on a good, good backlog and good opportunity for the rest of the year. So we are very pleased with that.

And, I know you didn't ask the question on chlorate. But on chlorate, we are sold out for the year and as of this week, we only have less than 20% of contract to renew.

And, as you all know, Chemtrade has shutdown Nanaimo in the West and the market on chlorate is tighter than it's ever been. So, good market and overall for Chemical business really looking good and for more than 1 on the two businesses, the two segments.

Okay, thanks, Luc. I’ll get back in the queue.

Okay.

Hi, this is Fahad on for Joe. Thanks for taking my questions.

My first question is on the guidance for the year for AOCF. How much of that – what's the contribution of the five months of Yankee and Virginia feeding into that guidance?

Maybe Beth, you can answer that.

Yes, roughly the best way to look at it is, the EBITDA that's coming in is around the range of $5 million, and that would be on an annual basis. The largest portion of EBITDA from those business due to seasonality is really the first four months of the year.

So, the best way to think about it is probably $1 million to $2 million. You would see in the back of the year after close.

Okay, great. That's helpful.

The next question I had was on Canadian Propane margins. So it looks like it flipped back to $0.18 kind of pre-2016 level.

What should we be thinking about in terms of margins going forward for the rest of 2017 and into 2018?

Because, like I said earlier, and Beth, you can add to that, the market itself, some owner customers, really doing well. No change, business as usual.

The wholesale, like we talked about earlier, usually have a million plus, minus every quarter. This time, it's been, wow, big change.

We don't know when it's coming back for 2017, 2018. We will - we have a procurement – we'll address some of that with our procurement, because we have more volume and hopefully, we can gain from that more for 2018.

But very tough to be able to have oversight on those variants of the procurement of the liquids. And Beth, you want to take that as well?

Yes, I think there is a couple of things I'd like to flag. The first one, is I think it's important to note that from a retail margin perspective, they continue to be strong and consistent with prior years.

We are maintaining the margins through our selling and marketing initiatives. So if you want to think about it, for the remainder of the year, we think, it's best to think about a range of $0.18 to $0.20 for the rest of 2017 and then moving into 2018, thinking about it in the range of $0.20.

Okay. That's really helpful.

And then my last question just quickly, any update on the regulatory process for Gibson? It sounds like the government is looking at propane concentration separately.

Any update on kind of the regulatory front in Canada? Thanks.

Yes, so from that perspective, we did – I mean, as we would have talked about at the last quarter, we did our initial filings at the end of February and there was a supplemental information request. As we expected, which we supplied at the end of March.

Now, or we got that at the end of the March or the request at March, and then we provided the responses. So certainly, we have been working with the Competition Bureau as expected.

We have agreed to provide some additional time, as we work with them to understand the transaction. As was expected and frankly typical with the transaction this size, so it does continue moving forward.

We still – I guess, I should add that we still anticipate closing the back half of 2017.

Okay, thanks.

Yes, thanks. So, just in terms of closing the back half year, just trickling back on the Canwest issue?

Is there going to be any other additional milestones than prior to the next quarter that we can be looking to or should we just be waiting on, I guess, news in the next quarter? I mean, just trying to figure out what we should be looking here in the next several months?

Yes, I mean, we are continuing to work with them to get the transaction to a successful close. So there is no other particular milestones other than we continued to work cooperatively with the Competition Bureau to get the transaction understood and then approved.

I see, because as I understand that this, the initial phase of these processes are very defined and linear in terms of the supplemental and more focus the time to respond, et cetera. But we are now into sort of this extension period where it's – is it less defined, is that the way to understand it?

Yes, that's the best way to think about it, because, as I mentioned, we did agree to provide additional time to the Competition Bureau to better understand and review the transaction. And so that's where you don't have its defined deadlines, as you're mentioning at the beginning of the process, because we did have an agreement and the reality is that's fairly typical with the transaction this size.

Okay, helpful. And then, just one last one, if I may, on the Specialty Chemicals side.

We've been seeing several of the contract price increase announcements on the caustic side and other by some of the larger producers. I am just trying to get an understanding of exactly how that's filtering through into your regions.

I think this is asked again on the prior call last quarter, but can you just remind us as to how the market dynamics in the Gulf flow into your results over time? How much business has been contracted already?

And how much benefit from the spot markets, et cetera? Trying to get a sense for how that sort of rolled through the results.

Yes, typically the best way to think about it is, it rolls in on a quarterly basis.

Okay.

So for the spot market, like chlorate, we have one to two years contract with customers. In the year, it really – when it moves with big, big production and the demand/supply now is really great on all of those HCLs.

So, we see it right away and we can increase price quarterly.

Okay, that’s very helpful. Thank you.

That's why the big lift quickly and we see that continuing. We thought it would be – we forecast some improvement and if you all remember, we were somewhat conservative.

Many of you were saying, well, we kind of hear it's going to be even more than that. And being a local player with a special very nice located plant in Wisconsin and in Saskatoon for the oilfield in Canada, we don't have a large, large producer.

So we kind of follow the trend, but the trend moves fast. And we benefited and expect to continue to benefit for the future.

Now understood. And actually, maybe just one more, if I may.

Luc, I think, you mentioned in some of your M&A remarks that you are starting to see some opportunities even in the Chemical sector. Would they be in derivative, sort of verticals to your own additional complementary or stacking up into even some of your existing production capabilities?

So, as you all know, on chlorate, we sell direct to every customer. HCL does different products.

Some we do sell to the food market, some we do sell direct, some with wholesale. We are looking more and more to understand the end-user and if there is a - so ,there are opportunities that we could, not big, but they are good, where you do become the one that goes from the production to the end-user and follow through with the marketing and sales of those operations.

So we like to do more of that. That was part of our strategic plan to get to be more direct.

And then when it comes to the business of ERCO, we would always stay with our core competence in the engineering we have. So it has to be from a geographic point of view or product complementary point of view, many touch points, so you know why we can do the job and we can do a good job with that business.

So, those are -- and we said it for the last few years, those are kind of not on our radar every day. They come just once in a while and we've seen some opportunities now that we are looking at that are pretty new.

So, we'd like to see if anything fits our bill, but it will be to work for real big products geographically, enhancing our present platform that we have. So, those are things we are looking at.

Thank you. Appreciate the time.

Okay.

Well, thank you, everyone and I am sure we’d like to see a conclusion with our Canwest, of course, and we are working diligently daily and weekly on that particular file and hope we can – in the next six months, we can come to a proper conclusion. It's a big one for us and from a business point of view, from a leadership that we have now everywhere from good growth in acquisition.

Actually, I have been here five years and we have our first wave Destination 2015. I can tell you I've never felt better from having a bit of wind on our side and behind us versus five years of wind in our face.

So, I feel better now as a CEO than since I've been here from where we are at and what we are going to do with this company. So, thank you all for being on our call and talk to you, I guess, in the next quarter.