Rob Durand - VP, Treasury & IR Luc Desjardins - President & CEO Beth Summers - EVP & CFO Darren Hribar - SVP, Chief Legal Officer

David Newman - Desjardins Securities Jacob Bout - CIBC Joel Jackson - BMO Capital Markets Elias Foscolos - Industrial Alliance Steven Hansen - Raymond James

Thank you, Crystal. Good morning, everyone, and welcome to Superior Plus' Conference Call and Webcast to review our 2018 Second Quarter Results.

I'm Rob Durand, VP of IR and Treasurer. Joining me today is Luc Desjardins, President and CEO; Beth Summers, Executive VP and CFO; and Darren Hribar, Senior Vice President, Chief Legal Officer.

For this morning's call, Luc and Beth will start by providing an update on our recent acquisition of NGL Propane, a high level overview of our operational and financial results for the second quarter, and an update on our 2018 financial outlook and Evolution 2020 strategic initiatives. Then we'll open the phone line for questions.

Before we 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 encourage listeners to review the MD&A posted on Cedar and 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. I'll now turn the call over to Luc.

Well, thank you, Rob. I'm very pleased with our transformational acquisition of NGL Propane and our accomplishments so far in 2018.

We closed on our acquisition of NGL Energy Partners on July 10, the retail propane distribution business which was Superior's largest acquisition today. The NGL Propane platform further expands our retail propane distribution footprint and the attractive market of Eastern U.S.A., where historically, weather has been colder than most region and propane demand growth has been higher than other region in the U.S.A.

Our extended platform would also provide us with increased opportunities to execute tuck-in acquisition of attractive multiple and realize synergies, further reducing the acquisition multiple. We will bring our Superior operating platform and digital strategy to the acquired businesses which is anticipated to provide us with operational improvement and cost-saving, as well as improve the service offering to our customers.

We're anticipating run rate synergies of $20 million to $25 million related to the NGL Propane acquisition on top of the normalized $90 million EBITDA of the base business. I like to take this opportunity to welcome the employees of NGL Propane and their well-respected local brands to the Superior organization.

As a result of NGL Propane transaction, I'm pleased to say we're increasing our 2018 adjusted EBITDA guidance from a range of $305 million to $335 million, going to $345 million to $375 million. Similar to Superior's U.S.

Propane distribution business, NGL Propane generates a material amount of its EBITDA during the first half of the year due to the significant concentration of their residential customers and seasonality of the man which is generally the highest during the first quarter. During the NGL last reported fiscal year, approximately 65% of the EBITDA was generated in the months of January to June.

Turning to our result in the second quarter. We achieved adjusted EBITDA of $43 million, 6% increase compared to the prior year quarter and AOCF per share of $0.21, which was 11% higher than Q2 2017.

Adjusted EBITDA was higher, driven by the contribution from Canwest Propane and our tuck-in acquisition completed in the second half of 2017 and then early 2018, and continued strength of our chlor-alkali markets. AOCF per share was higher due to the increased adjusted EBITDA, partially upset by increased cash tax and interest expense.

Our Canadian propane team has been working hard on integration of Canwest which has been executed on-plan after five months of work on the integration of the market, where we're confident we will achieve our goal of $5 million to $10 million in realized synergy in 2018, exiting the year with a $15 million run rate synergies. We will take the learning and the experience from the Canwest integration and apply them to the NGL Propane integration which has already started.

It's important to note the majority of the integration execution cannot be implemented until early 2019 as we don't want to disrupt the operation or the customer service of NGL Propane customers. Now let me turn the call over to Beth to discuss the financial results in greater details.

Thank you, Luc, and good morning, everyone. Overall, we are pleased with the second quarter results.

Consolidated adjusted operating cash flow or AOCF per share before transaction and other costs were $0.21 per share which was $0.02 higher than the prior year quarters, due to an increase in adjusted EBITDA, partially offset by increased cash taxes and interest expense. Superior incurred $9 million in transaction other cost in the second quarter related to the Canwest integration activities and acquisition costs related to the NGL Propane.

Transaction cost were $1.6 million higher than the prior year, primarily due to the cost associated with the integration and acquisition of NGL. Turning now to the individual business results.

Energy distribution EBITDA from operations including Canwest for the second quarter was $19 million, compared to $12.8 million in the prior year quarter, a $6.2 million increase primarily due to contributions from Canwest and the tuck-in acquisition and higher sales volumes related to organic growth initiatives in colder weather. In the prior year quarter, results from Canwest were reported as income from Canwest, separate from the energy distribution EBITDA.

Income from Canwest in the prior year quarter was $2.8 million. Canadian Propane distribution gross profit increased $19.6 million primarily due to contributions on Canwest and higher volumes related to colder weather in April, organic growth initiatives and higher average unit margins.

Sales volumes increased 97 million liters driven primarily by incremental volumes from Canwest, higher wholesale volumes related to continued benefits from sales and marketing initiatives focused on selling propane and butane to third party customers and higher retail volumes driven by colder weather. Average retail margins were $0.183 per liter compared to $0.176 per liter in the prior year quarter.

Average margins were higher than the prior year quarter primarily due to a decrease and the proportion of wholesale propane sales volumes which are lower margin. U.S.

propane distribution gross profit was consistent with the prior year quarter as higher average margins were offset by the lower sales volumes primarily due to the sale of the wholesale refined fuel assets earlier in the quarter. Sales volumes were 141 million liters lower, due to the decrease in wholesale volumes, partially offset by increased residential volumes related to colder weather and contribution from tuck-in acquisitions.

Average unit margins were $0.193 per liter, an increase of 87% primarily due to sales mix, partially offset by the impact of the stronger Canadian dollar. The improvement in average margins demonstrates the benefit of our focus on the retail propane distribution strategy and divesting of the lower margin wholesale refined fuels business.

Other services' gross profit increased $1.4 million compared to the prior year quarter primarily due to contribution from Canwest. Cash operating expenses were $88.6 million in the second quarter, a $14.5 million increase compared to the prior year quarter primarily due to incremental expenses from Canwest and the tuck-in acquisitions and higher sales volumes in Canada.

Superior energy distribution EBITDA from operations for 2018 is anticipated to be higher than 2017 due to the contribution from NGL Propane and Canwest, expected realized synergies and contribution from the tuck-in acquisitions completed in the Northeast U.S. in Canada.

Now turning to specialty chemicals. EBITDA from operations for the second quarter was $30.7 million, an increase of $2.3 million compared to the prior year quarter.

This was driven primarily by higher chlor-alkali netbacks and volumes related to continued improvements in the North American chlor-alkali market. Gross profit was $1.3 million higher than the prior year quarter, primarily due to an increase in chlor-alkali sales volumes, an increase in chlor-alkali netbacks for most product, partially offset by an increase in product purchase cost.

Hydrochloric acid sales volumes increased 11%, primarily due to higher oil and gas drilling demand in the U.S. and caustic soda sales volumes increased 10% primarily due to higher demand and customer purchases.

Caustic soda netbacks increased due to higher North American demand, the positive impact of growth and exports from the U.S. Gulf Coast and tighter North American supply.

Hydrochloric acid netbacks increased compared to the prior year quarter due to improved demand. Caustic potash or KOH sales volumes decline 10% compared to the prior year quarter due to the slower start to the agricultural and fertilizer season and net backs were 12% lower due to the impact of the stronger Canadian dollar on the U.S.

denominated sales and competitive pressures. Selling distribution and administrative cost of $36.7 million in the second quarter were consistent with the prior year.

Specialty chemicals 2018 EBITDA from operations is anticipated to be higher than 2017 primarily due to the continued strength in the chlor-alkali business, partially offset by the decrease in sodium chlorate gross profit related to volumes and increased electricity mill rate. Lastly into corporate results and the consolidated financial outlook.

Corporate costs were $3 million higher than the prior year quarter, primarily due to an increase in incentive plan cost and professional fees. Long term incentive plan cost increased compared to the prior year due to the share price appreciation in the quarter.

Interest expense was modestly higher than the prior year quarter due to increased effective interest rates partially offset by lower debt levels. Debt levels were lower if the proceeds from the sale of the wholesale refined fuels business and the propane distribution assets required by the consent agreement with the competition bureau were used to repay debt and a decrease in working capital requirements.

Working capital requirements were lower primarily due to amounts owed related to the divestiture of the wholesale refined fuels business. On Superior's debt and leverage at June 30, 2018, the total debt to adjusted EBITDA leverage ratio was 2.3x which was below the targeted range of 3x.

Following the acquisition of NGL Propane and related financing, the pro forma debt to EBITDA leverage is 4x, excluding the impact of synergies. For December 31, 2018, we anticipate the total debt to adjusted EBITDA in the range of 3.8x to 4.2x, which is above our long-term goal of 3x.

We're focused on reducing our debt to EBITDA ratio and are targeting to be at our long-term target of 3x by the end of 2020. We're updating our 2018 adjusted EBITDA guidance of $305 million to $335 million to a range of $345 million to $375 million, which increases the midpoint from $320 million to $360 million.

Superior's 2018 financial outlook of AOCF per share is $1.75 to $1.95, before transaction and other cost, consistent with the 2018 first quarter release. However, given the increase in the common shares issued in connection with the NGL Propane acquisition and the fact that significant synergies are not expected to be realized until 2019, we currently expect to be in the lower part of the guidance range for AOCF.

As Luc noted earlier, approximately 65% of NGL Propane's EBITDA is earned in the first half of the year. Given that seasonality of demand, for the balance of 2018, the anticipated positive EBITDA impact from the acquisition of NGL which closed in July 2018 is expected to be outweighed by the impact of the additional equity and debt utilized to fund the acquisition.

On a pro forma basis, the company still anticipates the transaction to provide double-digit accretion, assuming normalized run rate EBITDA of $117 million or $90 million U.S. dollars and anticipated run rate synergies of $26 million to $32 million, or U.S.

$20 million to $25 million. I'll now turn the call back over to Luke to provide an update on our operation Evolution 2020 initiative and the outlook for 2018.

Thank you, Beth. I'm proud of our accomplishments so far in 2018 and our ability to complete the acquisition of NGL Propane and the related financing in a such short period of time.

But also in our ability to execute on Canwest integration plan which is expected to provide $15 million in run rate synergy as we exit the year. In addition, energy distribution and specialty chemical operations are operating well and focus on organic growth and continues the improvement.

There are M&A opportunities in both businesses and we will be disciplined in how we allocate capital to ensure we continue to build value for our shareholders. At our Investor Day in June, we updated the market on our businesses and Evolution 2020 plan.

We increased the Evolution 2020 goal and are now focused on achieving EBITDA from operation growth of $200 million to $250 million compared to the 2016 goal of 2020. Pro forma, the acquisition of NGL Propane and based on their trailing 12 months EBITDA from operation were close to the bottom end of that range before you include synergy including the $20 million of run rate synergy from Canwest and the $26 million Canadian from NGL Propane were close to the high end of that range.

Following the acquisition of NGL Propane, Superior is now the fourth largest retail propane distributor in U.S. and the second largest in North America, as we are also the largest distributor and number one in Canada.

With that, I would like to turn the call over to question-and-answer.

Good morning, David.

Just maybe one for Beth on the guidance there and just looking at the EBITDA and AOCF. Just to be clear, when you say the low-end of the range, you're not referring to EBITDA?

No.

No. It's the AOCF per share.

Okay, very good, very good. Because that was a bit frightening.

And I know that debt guidance is 3.8 to 4.2. I think you said pro forma 3.7.

Just maybe give us your thoughts on when you came up with guidance, I know you sort of illuminated on it on the release, but just on the debt, is there any change, small changes there at all? And what are your assumptions for this winter coming up?

I assume you disrevert the five-year average or maybe a little tolerant on what your thinking was?

Yes. From a forecast perspective, we'll always forecast on the five-year average.

From a debt to EBITDA perspective as we look at the remainder of the year, factoring in working capital requirement et cetera, that's the range that we feel is reasonable in light of our current expectations for the businesses.

Okay. And as you looked at it Beth and Luc did, you've captured in there, I believe it was up to $100 million in acquisitions potentially that you would do each year?

Net cash flow, paying dividend and after that, to make acquisition.

Cap [ph]?

Yes. I think from a debt to EBITDA perspective, the way that we'll typically look at from a forecast perspective, we'll look at acquisitions that have closed and that would be factored in and many incremental acquisition would impact to put pressure on where we be within the range.

Okay. And if you look in the quarter on the -- specially chemicals -- you did note that there was a couple of unplanned outages at [indiscernible] alkali facilities and then Chilean [ph] sodium chlorate.

What was the financial impact of that? If you've run those full out in the quarter what would have been the EBITDA for that division, you think?

Yes. I think the impact would be something in the range of sort of $1 million to $2 million.

I mean, it's a little bit more impactful. I mean, these things happen from time to time in running plans, we do maintain our plans extremely well.

The reason why it's a little more impactful than you might see otherwise is because of the high level of demand and where inventory levels would be. So we did do some purchase products to make sure that we have appropriate inventory level.

Okay. And just on the markets itself.

Obviously I know you're affected by the Midwest pricing, which is also I guess in North American pricing and in the Gulf. But if you look at the Asian prices and some of the buyers are sort of saying in the sideline a little bit as well, do you think caustic arbitrage will make its way to North America?

What's your thought process? I should look at caustic into their remainder of the year and into next year if arbitrage does take place on the Asian markets into North America?

Our current view from a caustic perspective for the remainder of the year would be maybe a little bit of a strengthening and the volume being equal to maybe modestly higher.

Okay. And last one for me.

On the NGL, you struck a one-year deal for supply. Maybe just give us some of your thinking behind a one-year deal.

I know you have options on that. Is this something you want to back fill at some point through SGL or -- I don't know if you're still kicking your tires on the Gibson assets or what might be happening there, but maybe just some thoughts on why the shorter term supply contract and do you want to in-source that?

Yes. Well, we're doing a full strategy of North America propane and all our additional 1 billion liter.

We've known at short term, we've had from our supply in the States for NGL, we secured that for a year discount. As you know we saved some money there.

But we didn't want to do two, three or five years. We could do that tomorrow if we wanted to, or rather do our homework.

We think there's additional leverage or a size or position across Canada, our SGL group and our Northeast platform. We believe strongly that whatever we get in the next 12 months for this year as to the cost of supply, we will improve that in a year or two.

We really believe that. So we're taking our time with our long-term contract, we want to be able to have the freedom to leverage our size and leverage our logistic and we'll do better job next year because we have to put it together and develop a good plan.

Luc, is that Gibson file still active?

I'll go back to that one on that. Sure.

In terms of active processes, it's kind of our policy...

Not to comment. Yes.

Yes. Not to comment and yes, obviously at times obligated not to comment.

Okay. Very good, guys.

Thank you.

Thank you.

Thank you.

I wanted to go back to caustic. Can you talk a little bit about what you've been seeing or what your expectation is for the back half of the year and into 2019?

And then maybe comment a bit about hydrochloric and how you look at it from an MCU [ph] perspective?

There's some crackling on your line. If I can just repeat, you're asking about the back half of the year on caustic?

On a hydrochloric acid? Were you asking about the back half of the year as well?

Correct. And just how we should be thinking about that from MCU [ph] perspective.

Overall caustic and maybe Beth can add some more comment work on that, overall caustic looks good. We think the rest of the year will be good.

We think there might be even one additional price increase. So we don't see -- because of our location of our plan that we don't see any slow down in that regard from now till the end of the year.

Okay, yes. And some of caustic if you want, sort of more specifics, from our perspective in the back half of the year, we'd still be expecting some strengthening.

So maybe 15% to 20% on a netback basis and as I've mentioned earlier from a volume perspective, basically even to modestly higher from a volume perspective from what you would have seen in previous years. From a hydrochloric acid perspective, we would also anticipate some further strengthening on the pricing side in the back half of the year.

Initially maybe in that range of 30% to 35% on a netback basis and then from a volume perspective, we do think we may still see some strengthening in volumes. So maybe roughly at 10% strengthening in volumes in the back half of the year.

And what are you converting right now from chlorine-hydrochloric as a percentage of overall production?

We couldn't hear you because it's a little static on the call. Can you repeat that?

Through the crackles, I think what you're asking is how much we're converting of our chlorine to hydrochloric acid?

That's correct. Yes.

Okay. Yes.

Roughly in between 60% to 70% right now is what we convert it.

Okay. I think I'll leave it there.

Thank you.

Thank you.

Hey, good morning. I hope I'm not crackling.

You seem okay right now.

All right. Just across the street.

Okay. On the U.S.

Propane business that at NGL, obviously you've talked about the different volume or the earnings next class of [ph] quarters, but in terms of margin because you have a different mix in each quarter -- will the cents per liter -- I know what you guys [ph] but the cents per liter, will it be different across different quarters? How should you get margins per liter, per gallon, whatever?

They don't change quarter-to-quarter. The average margin will be higher than our historical margin in the state and then it kind of does well because we're really 80% residential, so there will be higher margin, but they're in the $90 million EBITDA.

Yes. I think one way of thinking about it or looking at it, now that we've sold the whole sale on distilled [ph] business in the U.S., historically you would have seen that impact so the margins would have been lower.

Now its NGL, I think it would be similar to what the newer margins would be. So think about it from roughly $0.25 to $0.30 per liter.

Yes. I guess that's with variability.

I think you're saying the variability from quarter-to-quarter is going to be clearly pretty smaller. We have a wholesale business, it could be all over the map.

Is that right?

Yes.

Yes.

Okay. If I think about the guidance for '18, it looks like you're kind of guiding to maybe mid-single digits EBITDA growth for the year and specially chemicals.

Mid-single digit EBITDA growth and specially chemicals for the year. Is that about right?

Let us look at it for a second. We have it here somewhere.

Yes. I think from a dollar perspective, we'd anticipate being somewhere between that $125 million to $130 million range.

Total EBITDA.

But we just don't have the math. We'll do it as we're sitting here talking.

That goes in the back?

Yes.

And then finally on caustic, a popular topic these days. Is your pricing commentary that you said 10%, or 15%, or 20% higher pricing with second half there.

Some of the caustic players in North America, some do quarterly contracts that can be repriced each quarter. Somebody of your competitors in the States will do long-term contracts or prices that reset with inflators every year as you kind of get pricing out for many years.

Where are you on that contract set up?

Yes. I would say half of the caustic is contract with whole-seller and distributors so there's less opportunity for price increase when the other half is, we increase price as the market changed.

Think of it as monthly quarterly index.

Mostly quarterly index.

Yes.

But is it where if you don't call your customers and they don't call you, the price rolls over? Or how does it work?

Or is it just based on index?

It gets repriced on an ongoing basis through the distributors, basically.

So even based on index, you think you'll see 15% and 20% higher pricing in the second half of the year?

Based on what we're seeing in the indications of the market, that's our current expectations. Obviously, those could change, but that's what we're currently looking and thinking about.

Okay, thank you.

Sure.

I think there are a couple more questions in the queue if you just want to check.

That we see to here.

Good morning.

Good morning.

Good morning.

Thanks for the caller on the cost synergy update. Appreciate that.

I wanted to focus something on NGL. Luc, you mentioned 65% of EBITDA occurs or I think it was that last year occurred in the first half of the year.

Given that we are analysts and sometimes we find kilometer [ph] things a bit too much, is it possible to get some more granularity on how much you would expect to see in Q1 typically? Just thought I would ask.

Yes.

Yes. Typically what you'd see in Q1 from what we've seen historically from NGL or from that business, think of it roughly in that sort of 55% to 60%.

Okay. I appreciate that color.

A bit higher than I anticipated. That does help explain this?

Yes. It does a result when you think about the business covering the U.S.

East. So January is a particularly cold month.

Okay. I appreciate because I couldn't see that granularity clearly in the business acquisition report.

That's my only question.

That gives me a chance to explain that from our acquisition of NGL, there is zero surprise, zero change from day one. What you see in the additional interest and share is queue a bit more for the next few months because the volume is really skew for quarter one more.

So it's a balance of quarter-by-quarter and maybe it takes time for people to grab that, but from our perspective and everything we see daily, there's no change from a $90 million EBITDA, no change in synergy in the next two years, no change the valuation of the business for result. It's just a skew quarter-by-quarter.

In your analysis you'll have to take that into consideration and then be more on target by quarter.

Great. I really do appreciate that color.

Okay.

Thank you.

Yes, guys. Nice save, Rob, on the Q&A.

Just a couple of quick ones. Your conversations, Luc, on the sodium chlorate side with respect to contract pricing, I know it's like end of '18, I think mid-'19 time frame.

Any early sense or is that conversation started yet or is it just too early?

It's really November-December.

Okay.

The conversation have started with two largest customer and no feedback, no second pass of that yet. So we're too early.

Okay. And do you think the pricing that you'll get will be a nice recovery for the electricity mill rate increases you saw this year and maybe potentially even next year?

Do you think it will cover up both of those?

I certainly wish. It's a whole thing and realistically don't know until those negotiations take place.

You're all aware of the major quality volume closure in Valleyfield Quebec, our competitor. It looks like the balance of the demand supply is more in-line, but you don't know until that all shapes up which is the next couple of months.

I hope you're right. I don't know enough to say we're very optimistic.

We don't know.

Okay.

Tighter and hopefully we can pass those increase and we'll see in the next few months.

Is it like 50% end of the year and then 50% mid-'19? Is it that sort of basket?

No. It's pretty much 45% end of this year and then you go to end of the year 2019, you have another 40% or so.

Got it. And just on Canwest as you've consolidated, taking synergies out and whatnot, your competitors are talking about winning accounts.

Is this a function of let's say some of the industrial customers who are relatively savvy about how they procure their propane? Is it a case of just dual sourcing that you're seeing?

Or you don't see any encouragement on your market share in Western Canada [ph] at all on the back of the Canwest and some of the consolidation you've done. Have you?

What we've seen and just review all of the above yesterday. So what we've seen is we are gaining market share.

Everything of Canwest is coming out around very quickly, nicely. The customer base really don't mind having one supplier.

It's no question at all. I need two supplier and just three product, you want that and buyers wants that, it's not the case for energy.

Okay.

I think what you're referring to is two years ago and I'm glad that happened because there's no way we could have bought Canwest. Two years ago we had a big large volume customer out west with very penny margin and cost of serve higher than your margin.

Net net when you go home to the bank, you have a loss. We got out of that business.

Somebody picked it up and for two years that particular supplier will end up with more volume. I'm glad they have it, I'm glad we don't and volume-wise, it gives us the change to pass to getting the Canwest acquisition and net net, we try hard here to win this standard cost to serve by customer by business.

And when in net net, we don't stay there long-term.

Okay, got it. Good.

And then the last one is the pipeline of acquisitions you talk about, sort of like the seven to 10, now you got NGL in the fold, how do you think this executing on that backlog or the potential deals, what should we expect in terms of the pacing of that?

Because of our possession in NGL position and be the -- and our three biggest competitor are not at very good position at this state, those MLT, we now have a double opportunity that we had and there's less buyers. So we're in a good, good position, but we're going to be twice as per them.

We don't want to make more than six, seven acquisitions per year of small tuck-in add-on. Main reason for that is we want to make sure we integrate NGL and do bring in all of our business' best practice and business model and execute it on the big scale of NGL.

So we'll do some additional tuck-in but we'll be prudent. We don't double up, we can do what we know, have a chance to doubling up.

We're going to be prudent. We'll do this acquisition, small add-on and we'll integrate the big NGL.

Once we have the wind behind us that there are capabilities that makes us more efficient are executed to a large degree, we'll probably ramp up acquisition, but that's not for 2019.

Okay, very good. Thanks, Luc, Beth and Rob and have a great day.

All right. Thank you.

Thank you.

Yes. Hi, guys.

Just a single for me. I apologize, I had phone issues this morning.

Just wanted to get some clarification around the operating issues that were in place in the quarter on the chlor-alkali and the chlorate side, I believe. I just want to confirm if those are complete and behind us now?

Sorry. Can you just repeat the start of the question, please?

My understanding is in reading, is you had some small operating issues into the quarter on the chlor-alkali side and if you could confirm that those are behind us now.

Yes, absolutely. All of the three alleges [ph] that we flagged, they were all a week or less.

A week or less? Okay, perfect.

That was it. Thank you.

Yes. They were minor outages.

And Steve, you might have missed that earlier on the call. We figure it would cost us between $1 million and $2 million.

Okay, perfect. Thank you.

Appreciate it.

Thank you. If there are no further questions, I would like to thank you for your participation in Superior's 2018 Second Quarter Results Call.

Thank you.

Thank you, everyone.