Thank you, Glenn. Good morning, everyone, and welcome to Superior Plus' conference call and webcast to review our 2020 third quarter results.

Our speakers on the call today will be Luc Desjardins, President and CEO; and Beth Summers, Executive VP and CFO. Today's call is being webcast, and we encourage listeners to follow along with the supporting presentation, which is also available on our website.

For this morning's call, Luc and Beth will begin with their prepared remarks, and then we will open up the call for questions. Before I turn the call to Luc, 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 Superior's third quarter MD&A posted on SEDAR and Superior's website yesterday for further details on forward-looking information and non-GAAP measures.

I would encourage listeners to review the MD&A as it includes more detail on the financial information for the third quarter as we won't be going 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.

Thank you, Ron, and good morning, everyone. Thank you for joining the call.

The third quarter, the month of October, was busy for Superior from a business development and M&A activity perspective. In July, we issued preferred share to Brookfield and received US$260 million in proceeds from the transaction.

We used the net proceeds from a preferred share to pay down our credit facility, and then we made two retail propane distribution acquisition in the quarter; Champagne and Rymes. Champagne is a well-run retail propane distributor, delivering over 40 million liter residential commercial customer in the Maine.

The acquisition of Rymes was a large transaction with annual sales of over 200 million liters in New Hampshire, Maine, Massachusetts and Vermont. Both acquisitions had significant synergy opportunities, which are expected to reduce the valuation multiple and increase anticipated return.

In October, we acquired two additional retail propane businesses, one in Southern California and one in the North Carolina. These two acquisitions were smaller in size, but is still expected to generate good return for Superior.

We've – so far, in 2020, we have made five acquisitions, total consideration of approximately $290 million. We are one of the leading North America – we're the leading North America retail propane acquirer and consolidator of this highly fragmented industry.

We continue to see many opportunities to grow through acquisition in the East U.S.A. and California in the West Coast.

We have a robust acquisition pipeline, and we expect there will be more acquisition opportunities coming out of the economic slowdown as many smaller midsized retail propane distributor companies may be challenged by the increased cost to do business coming out of the pandemic. In relation to our third quarter financial operating results, our third quarter adjusted EBITDA was $39.3 million, $9 million or 19% lower than prior year quarter, primarily due to a decrease in EBITDA from operation and higher corporate costs.

The third quarter is typically our lowest quarter due to the lack of heating demand in the summer months. Overall, the results were in line with our expectations, considering the challenge we face due to the impact of COVID-19, the weaker economic activity and the impact of reduced oil and gas drilling activity in Canada and in the U.S.

Our dedicated workforce of over 4,000 employees continue to serve our customers while maintaining safe, reliable operation during this challenging time. We continue to deliver critical energy specialty chemicals product to our customers and safely service the community in which we operate.

The resiliency demonstrated by our team members from every level of the organization gives me confidence we will continue to execute our strategy and maintain our commitment to safety and continuous improvement through operational excellence. Our modified business practice continues with the health and safety of our employees, our customer and local community in which we serve as a priority.

As our propane distribution and Specialty Chemical business are considered essential and critical services and infrastructure in all of their provinces, territories, states in which we operate in the U.S., Canada and Chile. We have continued to service our customers that have been classified as essential.

We still expect to finish 2020 with our previous communicated adjusted EBITDA range of $475 million to $515 million based on our current estimate and its expectation that weather in the fourth quarter will be consistent with the five-year average. We have done an excellent job adapting and adjusting to the decline of our sales volume related to the slowdown in the economy and the low price of oil, which enables us to maintain our adjusted EBITDA guidance for 2020.

I'm proud of our employees and our ability to respond quickly to this unprecedented situation. We continue to realize synergies of NGL Retail East acquisition and our recent acquisition.

We still expect to exit 2020 with US$24 million in run rate synergy related to NGL alone. We were able to reduce our operating expense in the U.S.

propane distribution business by $2.2 million in the third quarter compared to the prior year quarter through workforce optimization initiative, utilizing our Superior operating platform. We developed the Canadian propane distribution business, which we're now applying to our U.S.

business. Third quarter EBITDA from operation was $45.9 million or $7.7 million, 14% increase from prior year quarter, primarily due to the lowest results of Specialty Chemicals, partially offset by higher results from U.S.

propane and Canadian propane. U.S.

propane results for the third quarter increased compared to the prior year quarter due to lower operating expenses, the incremental contribution from tuck-in acquisition and higher average margin. It partially was offset by lower sales volume.

U.S. propane EBITDA from operations for 2020 anticipate to be higher than 2019, partly due to incremental contribution from acquisition completed in 2020.

Lower operating costs related to cost optimization realized synergy from acquisitions completed in the last two years, offset in part by lower volume related to the significant warmer weather experienced in the first quarter and also to some of our commercial industrial business impact on COVID-19. Canadian propane results for the third quarter were modestly higher than the prior year quarter, due to the decrease in operating expense, which I mentioned last quarter, we had a $30 million overall cost reduction in our differential price, including the impact of the CEWS, partially offset by a decrease in average margin and sales volume.

Canadian Propane EBITDA from operation for 2020 anticipate to be somewhat lower than during 2019, primarily due to an expected decrease in sales volume, partially offset by a decrease in operating expenses as I mentioned earlier. Sales volumes are expected to decrease due to the impact of COVID-19 and reduced activity in the oil and gas, and some slowdown in commercial industrial customers across Canada and U.S.

Even though in U.S., we're basically retail propane on a – and that does not – didn't really affected by COVID-19. Specialty Chemicals result for the third quarter were lower primarily due to a decrease in sales volume of chlor-alkali prices, partially offset by a modest increase in sodium chlorate prices, the decrease in electricity costs and operating expense, including the impact of CEWS.

Specialty Chemical EBITDA from operation in 2020 is anticipated to be lower than 2019 due to a decrease in both chlor-alkali and sodium chlorate gross profit related to the impact of COVID-19, and partially offset by a decrease in operating expense. So on that, I'll turn it to the call to Beth to discuss the financial results in more detail.

Thank you, Luc, and good morning, everyone. Looking at the financial highlights for the third quarter, our consolidated third quarter adjusted operating cash flow before transaction and other costs per share was $0.06 per share, which was $0.05 lower than the prior year quarter, due to the decrease in adjusted EBITDA, an increase in cash taxes and an increase in the weighted average shares outstanding, partially offset by a decrease in interest expense.

Weighted average shares outstanding increased primarily due to the impact of including the preferred shares on an as converted basis as well as the impact of the shares issued through the DRIP, which was suspended allowing the dividend payment in June 2020. Interest expense decreased primarily due to lower average interest rates on our variable rate debt and lower average debt level.

Average debt levels during the third quarter were lower than the prior year quarter as the proceeds received from the preferred share investment from Brookfield were used to repay our credit facility debt. Superior had a consolidated net loss of $21.4 million compared to a net loss of $59.3 million in the prior year quarter, primarily due to an unrealized gain on derivative financial instruments compared to a loss in the prior year quarter and lower SD&A costs and finance expense, partially offset by lower gross profit.

Turning now to the individual business results, Canadian Propane EBITDA from operations for the third quarter was $21.6 million, a $0.7 million increase compared to the prior year quarter, primarily due to lower operating expenses, partially offset by lower adjusted gross profit. Operating expenses were $15.9 million lower due to decrease in employee-related expenses, including the impact of the CEWS as well as cost reductions in response to lower sales volumes.

Adjusted gross profit decreased compared to the prior year quarter, primarily due to lower sales volume and weaker wholesale market fundamentals. Average unit margins were $0.164 per liter compared to $0.184 per liter in the prior year quarter.

This is due to weaker wholesale propane fundamentals, which have returned to historical market trends. Total sales volumes were 341 million liters, a decrease of 52 million liters or 13%, primarily due to reduced demand in wholesale, oilfield, commercial and motor fuel segment.

Turning to U.S. Propane, the U.S.

Propane EBITDA from operations for the third quarter was negative $4 million, an increase of $3 million compared to the prior year quarter. This is primarily due to lower operating expenses, incremental contribution from acquisitions completed in the last 12 months and higher average unit margins, which was partially offset by modestly lower sales volumes.

Operating expenses were $2.2 million lower than the prior year quarter due to cost reductions related to workforce optimization initiatives and realized synergies from acquisitions. Average unit margins were $0.364 per liter compared to $0.347 per liter in the prior year quarter primarily due to effective management of pricing in a low commodity price environment, the impact from the translation of U.S.-denominated gross profit and to a lesser extent, customer mix related to a focus on organic growth of higher-margin propane customers.

Total sales volume decreased 3 million liters or 2%, primarily due to the lower commercial and wholesale volumes, partially offset by higher residential volumes. Turning now to Specialty Chemicals, EBITDA from operations for the third quarter was $28.3 million, an $11.4 million decrease compared to the prior year quarter, primarily due to lower gross profit, partially offset by lower operating expenses.

Gross profit decreased due to lower chlor-alkali sales prices and volumes and lower sodium chlorate sales volumes, partially offset by higher sodium chlorate sales prices and modestly lower electricity mill rates. Operating expenses decreased primarily due to lower employee-related expenses, including the impact from the CEWS.

Lastly, the corporate results and the adjusted EBITDA and leverage guidance. Corporate costs were $7.1 million, an increase of $3.2 million compared to the prior year quarter.

This was primarily due to higher LTIP expense related to the share price depreciation. Interest expense was $22.5 million, a decrease of $4 million, primarily due to lower average interest rates on variable rate debt and lower average debt levels.

Interest rates on variable rate debt were lower due to interest rate cut by the Bank of Canada and the Federal Reserve in 2020. In the third quarter, Superior had cash income tax expenses of $4.1 million, a $1.6 million increase from the prior year.

We expect to finish within our 2020 adjusted EBITDA guidance range of $475 million to $515 million based on our year-to-date results and our current estimates for the fourth quarter. Average weather, as measured by degree days for the fourth quarter, is anticipated to be consistent with the five-year average for Canada and the U.S.

The low end of the range accounts for warmer-than-normal weather for the remainder of 2020, further weakness in economic activity in Western Canada, further weakness in North American caustic soda and hydrochloric acid markets and any further volume decline related to COVID-19. The high end of the range accounts for colder-than-normal weather for the rest of 2020, wholesale propane market fundamentals similar to 2019, increased drilling activity in Western Canada, improved North American caustic soda and hydrochloric acid market and a faster recovery from the COVID-19 pandemic.

From a debt and leverage perspective, the total debt to adjusted EBITDA leverage ratio for the trailing 12 months as of September 30, 2020 was 3.4 times compared to 3.7 times at June 30, 2020, and within our long-term target range of 3 times to 3.5 times. The decrease in the leverage ratio from June 30 was primarily due to lower debt levels and higher pro forma adjusted EBITDA.

We still expect total debt-to-adjusted EBITDA leverage at December 31, 2020, to be in the range of 3 times to 3.5 times, albeit at the higher end of the range due to our recent acquisition, which were financed primarily using the credit facility and deferred consideration. With that, I’ll turn the call over for Q&A.

Desjardins. Good morning.

Good morning.

Good morning.

How are you?

Good. I know how you felt about the earning.

I think you do. So in terms of guidance, you expect to be in the range, but you previously sort of guided to the low end of the range.

So I would assume with Rymes and the other deals, we are probably more near the middle of the range now. Is that safe to say?

Yes. That’s right.

Yes. That’s a reasonable expectation.

Yes.

Okay. And then on the wage subsidy, you had $17.6 million in the quarter.

Any expectation that you’ll receive any in the fourth quarter?

So we’re going to continue to evaluate the impact of COVID-19 on the business and the change in regulations. So we will assess the company’s qualification for the additional CEWS subsidies.

And I would say based on the current range, we expect that there would be some, but we haven’t done the detailed work. So at this point, it isn’t clear when and if we would file, but if we did the deadline January 31, 2021.

And I would think, Beth, some but less, right, like it’s going to be less than what you got because of the change in regulations, right?

Yes. We’d be expecting based on the current rates that there would be some.

Yes.

Okay. Very good.

And then on the operating expenses, obviously, you did a great job there, and Luc, I think I called out $30 million. You had a little bit more in the U.S.

that you’re looking at in terms of optimization. I think you previously called out like $10 million, $11 million being permanent.

Has that changed in terms of the permanency of the cost savings?

Yes. For – no, we have less volume in the chemical business.

We don’t know when this comes back to fully be more busy after COVID, probably in midyear 2021, but hard to forecast that. But we do have another project of group rationalization and cost structure.

And by the fourth quarter, we will look at, for 2021, additional cost reduction. I know right now, it’s at least $5 million and probably looking for more than that as we finish our work.

And I would – would that be sort of immediate or would be kind of spread across 2021, Luc?

Spread across 2021.

Okay. $5 million annualized, correct?

It will be sustainable. It’s not a onetime.

Okay. And then just overall on propane, last question.

Just on, obviously, the basis spreads have come in, in Canada on the wholesale side. And similar in the U.S., the effective margin management you had from price increases followed by our a rollover RAC prices that’s obviously narrowing.

Any sense on, as we head into the fourth quarter, what the margins might look like vis-à-vis, I guess, the third quarter?

Yes. We would expect from a Canadian propane perspective.

Historically, the differential of the impact would be roughly or what we’ve been seeing is roughly $0.02. So the reality is, I think, going forward, the best way to think about it is Q4 will look similar to Q3, which is a return to what normal differentials or the normal market would look like, market fundamentals.

So less than what you would have seen in 2019, which they were more robust at that point. In the U.S., we would also see going forward some additional pressure.

And currently, if you want to think about the U.S. propane margins, roughly or $0.02 on the $0.36 would be margin management, which would encompass sort of that rack price discussion that you’re having.

So from that perspective, we would expect US$0.25 to US$0.30 or CAD0.34 to CAD0.41 for Q4 with a foreign exchange rate of roughly CAD1.3.

[Indiscernible] CAD0.34 to CAD0.41?

Sorry?

CAD0.34 to CAD0.41, I think you said Canadian, is that – is that what you said that?

Yes, yes, yes. With...

Lower end of the range there?

Yes, yes. Yes, I think some were sort of consistent with where it is now.

So not the lower end of the range, closer to where you’re seeing Q3 would be our first...

Okay. And Luc, you’re going to – if you have anything?

Yes. Well, when we say we’re going to build a tradition in the middle of our range, we’ve included those numbers asking for the pricing.

Excellent. So great quarter, guys.

Thanks a lot. Appreciate it.

Thank you, Dave.

Thank you, and good morning. Just a couple questions on M&A.

Can you talk about plans or strategy to get the Specialty Chemicals business kind of back to a growth profile? I know you conducted a strategic review.

I guess you started at June 2019, and you concluded no sale. I think it was January of this year.

But obviously, there’s been a lot of changes to the outlook since then structurally. What do you think of the business right now?

And is it something that you’re willing to reconsider doing a strategic review on? Or is there opportunities to do bolt-on acquisitions?

Yes. No, good question.

Certainly, we don’t want to do any acquisition in the Specialty Chemicals. We want to keep all our cash for ERCO.

Every time we buy one and the recent one, we see a 25% bottom line improvement. So our money from an M&A point of view will go there.

For ERCO, yes, we’re – the tougher year with oilfield U.S., which is a good market for us. And the paper, as you can see, it’s not a big percentage of our rate paper, it’s 7%, but offices and law firms end up using a lot of paper this year.

So it’s kind of a rougher time for the volume of ERCO, and they’ll probably be like that for six months, one year or so. And then we’ll see – come back to better – normalize over the 5, 10 years better results.

So for the moment, we’re not anticipating organizing any sales process. We’ll probably look at selling it one day down the road.

We do get in calls and sometimes it looks interesting, and we communicate, of course, with people when it’s a serious buyer that wants to give us a call and have a dialogue, but no big process until we go back to a more normalized EBITDA, which is probably in late 2021 or 2022, where we come for the result.

One thing that I would flag, we are currently in the process of doing some internal projects that would result in expansion of the business. And that we would have talked about this in previous quarters.

But some expansion work in the Valdosta plant and the Buckingham plant as well as some work around some of our intellectual property around Tronox.

Yes. It’s a very good point.

Because we did close high-cost energy costs Western Canada plant. And we’re seeing the two plants on the East Coast Buckingham and Valdosta.

Buckingham should be finished this month. And we’re going to be able to produce the volume we have on the West Coast at much lower cost starting 2021.

The electricity cost is 70% of variable cost on chloride. And there’s lots of profitability to produce more in that Buckingham.

And then Valdosta will probably be – it’s not finishing this year, it will be in 2021 that the work will be finished to, again, produce chlorate at lower cost for the years to come.

That’s great. And then my follow-up question was – or is – it’s been about two-plus years since the NGL acquisition.

And obviously, you’ve done a lot of small tuck-ins since then. With Brookfield in your corner, do you think about doing some big transformational acquisitions, the size or slightly smaller than NGL?

Or are you just focused on the tuck-ins going forward?

No. We – I think it was pretty good signs with, I would say, mid-sized acquisition, and we have a pipeline that’s probably bigger than I’ve ever seen since we start to do acquisition in propane.

And no, we are hoping to look at whatever is available for sale when they come due. There’s more now because the market – a lot of people have no succession.

They’re getting older, they say, hey, it’s like there’s a change around the world and the – and people are saying, well, maybe it’s time I get out. There’s a bit more of that.

But no, we will not – we will – I should say, we will look at every type of deal, the small, medium or large if they come available, we’re convinced after all those years of work and the Superior way and our digital execution that we could buy any one of the large, medium or small player in propane, mainly in U.S.A. and improved them tremendously.

So we are always on the hunt to find acquisition.

Are there valuation differences between the large and the small guys of the premium?

Yes. It is.

Yes. The bigger one brings you bigger synergy, so it’s good.

But you usually pay more for small – you pay less for small, medium and you pay more for the large one. But large one, when you have more synergies with the overlap, you get a lot more synergy.

That’s helpful. Thank you so much.

Yes, thank you.

Yes. Good morning, guys.

Just a simple one on the M&A side, if I may. I’ve noticed that some of the MLPs in the U.S., one in particular, has trimmed their dividend lately for their distribution with the idea of shoring up their balance sheet and returning to growth.

Have you started to see any more competitive dynamics showing up in the M&A environment? I know you’re suggesting the opportunity this is extremely long look.

I’m just trying to get a sense where the competitive environment is moving higher or if it’s much the same.

No. The pipeline we have today, you look at the bigger deals or the small one, we don’t see any of the MLP at the door competing with us.

No.

Okay. That’s great.

Just one follow-up if I may, on the chemical side. If you could just speak to sort of the pricing dynamics you’re seeing on the chlor-alkali side.

We all see the benchmark prices, of course, but just maybe remind us how those dynamics are foreseen through the final quarter of the year and into early next year, particularly on the chlor-alkali?

Yes. So chlor-alkali, the wages pricing is obviously higher.

HCl pricing is down. And the pricing is modestly the worst, it’s not changing, but we’ve seen in the last month, a little bit more volume on caustic.

And usually, when volume starts to move positively, price increase follows. And those type of products like caustic, when it moves is like, it’s fast.

It’s immediate increase. We don’t see the price increase, but we see a bit better volume.

On the chlorate, we’re in a good position. We’re – usually, at this time of the year, we have 20%, 30% of our volume we need to renew.

We’re less than 10% to fill up our plans for 2021. Pricing is very good.

And we have reduction in energy costs. So we’re in good shape in chlorate for next year.

That’s great. I appreciate the color, guys.

Thanks.

Thank you.

Great. Thanks, and good morning, everyone.

So just a follow-up on Steve’s question. In terms of – on the Specialty Chemical side, we’ve seen lower – both lower chlorate and chlor-alkali volumes for the past year, but it was obviously accelerated down due to COVID.

But have you seen volumes trough in Q3 or have they dropped in Q4? Or are you expecting a bit more weakness?

Want to go first?

Yes. Yes.

I think overall, if you want to think about from a volume perspective compared to what we saw last year, I think our assumption would be in Q4, you’d still see modestly lower volumes in basically all of the products. But that being said, our assumption would be, in particular, on the chlor-alkali side, that we would have seen it troughing at least for a lot of the products in Q3.

And then some very modest growth, and it’s smoothly flowing as the economic activity picks up from like as COVID-19 recoveries occur. So that would be our view.

I think Q4 is a little bit more of a stable and then potentially starting to pick up in 2021, but mostly the pickup in 2021 our assumptions would be to hit certainly in the second half.

Okay. So just – so if I heard right, like from an absolute volume basis, Q3 is probably the trough.

And then Q4 is...

Yes.

Could tick up a bit, but still lower year-over-year?

Yes.

Q4 looks better already. And next year, we believe in the second half next year, we’ll start to see chlor-alkali some good size improvement in pricing.

Yes. And just to clarify that as a whole, like I was providing year-over-year data.

We would anticipate our HCl volume would improve moving into Q4 from Q3.

Yes.

Okay. Got it.

And then just the next question relates to the wage subsidy that you guys mentioned earlier. In terms of the $18 million or roughly $18 million received during the quarter, how should we think about that impacting EBITDA for the quarter?

Like I presume it wouldn’t have been a straight one-for-one impact for – on the EBITDA, there would have been some type of, I would say, inefficiencies. But could you just talk about how – like if you haven’t received the $18 million, like I presume your EBITDA wouldn’t have declined by $18 million.

But can you just give some color there?

Yes. If you think about the wage subsidy, it isn’t for necessarily just the impact in Q3.

Like if you take the wage subsidy completely out and we think about the quarter, what our expectations would have been, we’re slightly lower from a Canadian perspective, where we were expecting some recovery from a COVID-19 in Canadian propane. And we would have, in theory, thought that the differentials would have remained a little stronger, which they weakened.

But like overall, modestly lower than what we would have been expecting in the. The U.S.

propane business is stronger than we initially would have potentially expected within in the quarter, part of that being driven by the acquisitions, over the last – the acquisitions that we saw, but also some stronger margins, and that was offset by some of the COVID impact, again, which is much less than the U.S. because of the smaller commercial base.

And then when you think of the chemicals business, the chemicals business was hit harder from the COVID-19 impact than we would have initially expected. So everything was pretty much in line other than the chemicals business was impacted more because that economic activity just hadn’t started to recover where we were originally looking at the year, we would have expected it to start recovering sooner.

Okay. To put it another way.

So like if you didn’t receive the $18 million, what would your – how would it have impacted your EBITDA in Q3?

Well, it’s a tough question. But let’s say, in quarter four on propane, we didn’t – we’re telling everyone that we’re going to be in the middle of our guidance, so we didn’t include any government grant for quarter four.

In quarter three, there was a big disconnect on the chemical side from volume, that number of people at work and then commercial and industrial. So we did get affected quite, probably double what the – more than double what the current rates are.

You never pay the exact disconnect of the market. And then now we’re back to more normal propane situation.

So I know that’s the answer you’re looking for, I’ll ask Beth to shed additional point in that regard.

Yes. Nelson, trying to peel in your question.

If you’re trying to get to what a normalized Q3 EBITDA in our minds based on a typical year from an expectation perspective, think about it as normalized for Q3 in that range of $25 million.

$25 million or I think $30 million.

Okay. All right, that’s good.

I can follow-up if I have any more questions. Thank you.

Yes. Good morning.

Just on your U.S. tuck-in acquisition strategy, we’ve seen recently certain cities in California announce policies that ban new residential builds from installing natural gas.

So I’m just wondering how you’re thinking about political risk both of the state and now the federal level, I guess. Just with respect to potential bans on residential propane consumption over time, does this added layer of risk, either change your desired pace of tuck-in activity in states like California or influence the EBITDA multiple at which you’re willing to transact?

Yes. The – this is probably good news for us.

There’s no natural gas pipeline that’s going to be built in the California market. And when you think of electricity, we’ve done some research on natural gas, and we do that.

We’ve done some research on electricity. And then you think of where we have propane in California, where the market of propane is in California is, maybe in both valley a little bit, east of the big city.

It’s just nothing else that can replace propane. And we’re letting in the many years to come, short and mid-term that we can even think about replacing propane.

So from the – well, like Government California are even a considered and I looked at it, pretty much like Canada. Think it BC or Québec, they’re very strong as always trying to promote faster quicker, the change of energy consumption, which is a good thing.

But we have our niche, we’re 5% of all the energy. And the reason that 5% is alive and solid because there’s nothing else that can go there and give you the energy you need.

So we’re – feel from our survey we just did three months or two months ago, our strategic plan and all the survey that we research and the industry research, we feel that it’s sustainable solid. And not having any natural gas opportunities is probably good for us.

Okay. And then maybe for Beth, just to go back to the discussion around op costs coming down as you rightsize the business with the current environment.

But on the flip side, it looks like finance lease payments are up quite a bit year-over-year. I’m sure some of that is just related to the acquisitions.

But maybe you could just provide a quick update on where your run rate finance lease payments are today and where you expect them to be into 2021?

Are you talking about – okay. So there's one where from a CapEx perspective, maintenance CapEx would be lower from a U.S.

perspective, where we've got $10 million around lease vehicles. And what we have done is we're leasing vehicles as opposed to buying.

So that's roughly $15 million, $20 million from a lease perspective. Pat, are you referring to, I guess, IFRS leases?

Yes. Yes.

Exactly. Just looking at your distributable cash flow reconciliations.

So just trying to get a sense as to what the run rate finance lease payment number looks like next year as well as if you have the maintenance capital as well.

Okay. So yes.

So that's roughly $20 million annually for that. And then from a maintenance CapEx perspective for 2020 it's $45 million to $50 million.

Okay. Great.

And then maybe just last one for me, just to clean up the full year guidance here for 2020. It looks like you're assuming five-year average weather for Q4, but – I mean, winter is here at West, but it doesn't look like it's arrived at East yet.

Just curious if it doesn't come through December, either what the sensitivity could be on your full year EBITDA number just from warmer weather out East?

Yes. We're going to look at some numbers for you.

Yes. Well, I – yes.

I mean, I think at this point, I mean, we do factor, as we said, a warmer than the five-year average winter is – as we're talking about the guidance is from why we have a lower end of the range? Maybe looking at it, one way of thinking about it is if it is warmer, $5 million to $10 million?

Okay. That’s great.

I will leave it there.

Yes, which will bring us to the low end of the guidance.

Pull down all the way, but that's one of the sensitivities that would move you from the midpoint below.

Yes. But it will still be in the guidance.

Okay. Perfect.

Thanks Luc. Thanks Beth.

Good morning.

Good morning.

Sorry, if there is some background noise. A couple questions.

My eyes are focused on 2021. And I want to step back a bit to Q1 2020 U.S.

Propane, we saw a very warm quarter. If we normalize as I said, with my focus on 2021 and without you explicitly giving guidance, would you say the impact of the warm weather was maybe $30 million on your EBITDA or $35 million or $40 million?

And the reason, quite frankly, is I'm looking at the step-up for a normalized winter plus the contributions from the tuck-in. So if you can give me one piece of the puzzle, it might help.

Yes. I think the best way to think about the warm weather in Q1 is on a net basis to 2020.

There were a lot of cost efficiency and cost initiatives, and you have reduced volume. Costs associated with that, so that $20 million is a reasonable number to you.

Yes. Yes.

Okay. I appreciate that.

Next question. And Luc, you touched upon this, and I'm happy you did.

I'm going to focus on cost, but I'm going to focus on the cost side in the chemicals division. I know you've moved sodium chlorate out of Saskatoon.

Is there anything on the cost side where you can permanently take costs down as you look forward to the business getting into a more normalized cycle and then looking at different divisions?

Yes. There is, of course, less than chemical than what you can adjust in the distribution business.

Because distribution business, your variable costs are – they can follow volume easier when that's fixed, but in chemical not as much. But we do – we just did a reduction of giving a chance to people over, I think, is 63 years of age to take early retirement.

And if I'm not mistaken, we're obviously looking at numbers I think 25 people have accepted that. So we have a cost reduction of those people, 25.

We do have some cost reduction we're looking at in ERCO for 2021 in the tune of an extra $1 million to $2 million. So there is something there.

Not as easy to adjust because our fixed plan. The plants are very modern and their equipment is running the production, not so much people.

So not as easy to address, but there is a program, and there is a reduction in cost of SG&A and overhead of the chemical business for next year.

Okay. I appreciate that color.

And one last question for me. We are, I'm going to say six weeks into Q4.

I'm kind of interested how residential propane volumes, if you can comment on it, are trending in the U.S. And I guess I'm looking at an impact of a normal winter or a colder winter according to the NOAA, and also people staying at home?

Yes. So the residential is doing well, Canada and U.S.

Now we're 85%, 90% residential, U.S. so we see the same volume and it's coming properly.

When you look at Canada, we're 25% residential, 75% industrial commercial. So we get affected by COVID more on the commercial industrial business in Canada, not particularly none in the states.

And our business in Canada, by the way, to your point, is residential is up, but never enough to cover all the commercial industrial slowdown that we see through COVID. But with our cost reduction, you think of this year of how we start with the weather being warm.

But the previous question on the Northeast USA and you start with COVID commercial/industrial, some help on acquisition in quarter four coming, but nothing major. It's only a quarter.

And we end up with being in the middle of our guidance. That's, to me, is quite remarkable.

And it shows the sustainability, the solidity of our business even in tough times. Chemical, a bit more affected, of course, with COVID-19, energy, much, much less.

Great. Thank you very much for that color.

I will stop at this point. And I agree a quiet resilient business.

Yes, thank you.

Hi, good morning. I know it's a bit early for 2021, but I was hoping you could maybe help us understand some of the levers on the 2021 bridge.

So obviously, you're going to have some rebound in the macro. You're going to have increased earnings in U.S.

Propane on deals you did today – sorry, deals you did this year. You're going to have more tuck-ins in M&A in U.S.

Propane, you expect that it will drive some earnings, I guess there'll be some offsets. You don't have CEWS benefits.

But can you give us kind of order of magnitude where you see with different placeholder M&A in your model? What 2021 could look like in the different bucket?

Yes. There's a couple of things.

First, somebody mentioned earlier that warm weather. We expect normal weather.

And we move in line with cold. So that will be a plus.

The tuck-in acquisition, we don't include – even though we have the roll up, and we're going to do some in 2021. We don't include what we haven't bought in 2020 and the 2021 forecast.

What we will include, and we're weeks away from finishing the forecast, what we bought this year and what does that mean for the full running rate next year. So you have those two this year's acquisition of M&A.

You have the weather. Those are the big macro improvement that we will have from the state and not much – really no decline because of the COVID in residential.

But what in your model are you planning for EBITDA growth from new tuck-ins for 2021? Even – I'm not saying about your official guidance, Luc, I'm talking about just what you see and sort of what you'll grow earnings for next year for tuck-ins?

Beth.

Yes. I think – I mean, we talked on the last call, with the Brookfield investment the view is that we would be accelerating M&A activity.

So from a base tuck-in acquisition perspective, I mean, our views would we would be looking at something around $250 million.

As always question is, I think Joel is more, what we bought this year, what does that mean on EBITDA next year?

No. But no, it's – no.

It's what that is both.

No. Got you.

You want to know our forecast? We're like two weeks away from doing the forecast.

No, no. If I – because you're...

But no way there and what we bought this year is going to make...

You're planning to – we're analysts, and we have to model what we think you're going to do next year. So that to saying you're planning to do about $0.25 billion of acquisitions.

So we have to – you can give whatever guidance you want, but we have to figure out what EBITDA will actually be next year based on your tuck-in plan. That's what I'm trying to get an exact answer, which is sort of what your – sounds like you're talking about $0.25 billion of acquisitions next year.

Okay. So Joel, so the two pieces then.

Yes. I mean, looking at accelerated acquisitions, $250 million is a reasonable thought to use for that.

And then it's around the acquisitions that we've closed to-date and those – this year and that impacting next year, think about that in the range of $25 million.

That's helpful. The other question I had was through the end of September, Canadian Propane volumes are down about 320,000 – 320 million liters.

It was – a lot of wholesale 200 million, it was 50 million oil field. How do you look at in 2021 how that comes back?

I know I'm talking about three quarters. But what – how much of wholesale would you expect to come back in 2021?

Would you expect oilfield slightly up or flat? There's some other little puts and takes in motor fuels in commercial.

But how do you think about the different Canadian Propane buckets coming back in 2021?

So there's been a slowdown in industrial and commercial. Think how to get volume in Québec and in B.C.

market, and that's really down. So to predict, all the – overall industries in general are going to come back in 2021 and when after a vaccine is so hard to do.

So what we usually putting our heads together for the next few weeks is, we always give a guidance. We really strongly believe, and it's hard to predict more today than the past years.

Beth, anything you would add to that?

Well, I would just sort of mention at a high level, and it's going to be linked to when a lot of the COVID-19 restriction. But if you want to think about it from a category perspective, for motor fuels, I think until travel returns to normal, I think you're still going to have some depressed volume on that.

I mean our assumption would be we'd start seeing in certain of these categories, improvements starting in Q1, but probably not until the back half of next year, real improvement. From a commercial perspective, I mean, really, until you have the restricted capacity being lifted, there'll still be headwinds in the commercial area.

And then wholesale, the best way to think about that is it will solve the overall economic activity. Now oil and gas is a bit of a different animal, and we would see that not recovering at the same pace as all of the other categories.

But the U.S. oil and gas probably coming back stronger.

If we give you our two sense and all of you on the phone are probably better equipped to do economy analysis of the world, I think when it comes back, let's say, we have a vaccine mid-year 2021 is more back to 90%, 95% normal. I think you'll see we won't forecast that because we don't know enough.

But you'll see chemical coming back, oilfield U.S. coming back, Canada not so sure.

And some commercial and auto industry that we have in Propane Canada, I think there'll be a boost when it comes back, there'll be a push, and it will be helping us tremendously, but hard to forecast that, so we probably won't go there from a full 2021 forecast.

If I had any feedback, I would say, when you give 2021 EBITDA, you should give it really, including what you think will be for your accelerated M&A. And then you can maybe bucket it off and say, here's our guidance for 2021.

This includes ex of incremental EBITDA from acquisitions because that's what investors are modeling, right, with acquisitions. So you may want to consider getting a two-tiered level of guidance next year.

Okay, then including what we're going to buy during the year of 2021.

Well, you have placeholders, and you have a plan to – but you knock it off, with your assumptions, right?

Yes. We'll that take that consideration, Joel.

And if we do, we'll be clear that there haven't been bought yet, but this is what we have shown and what we intend to be – I hope everybody in the call understand that we've been extremely open, transparent and we give you the right – the good, the bad, the ugly. We don't pull back when all things are unfolding.

Thank you.

Just a quick follow-up that kind of completes the puzzle on your 2021 forecast. Summary, you generally take the time to kind of really focus on initiatives.

And the one we haven't talked about in a while is your sensor program and mySUPERIOR and what you're able to get done this year in Canada, and I think you have plans for the U.S. for 2021?

And how meaningful that could actually be to EBITDA in terms of efficiencies and locking in stickiness with your customers?

Yes. Such a good question.

If I can assure you that our project and works as speak all time. So we went from now 80% operating cost to the 56%, 57%, overall.

And there's room there to build over. There's an initiative on projects that we're testing now with the digital dispatcher across Canada, and we're testing in one particular area.

As we see the simplification of our forecast of the weather, the customer base, the sensors we've installed, the digital approach. Once we have the tests proven good, we'll apply it across Canada and across the U.S.

So those programs are – the big list that has been done up to now. I believe there's – and our forecast for the strategic plan.

There's a percentage increase every year of efficiency that we'll continue to do, probably not as big as 80% going to 57%, but can 57% become 56%, 55%, 54%, absolutely.

And where do you stand in Canada overall, Luc, in terms of the implementation? And my understanding is you were you hadn't started it yet in the U.S.

So what sort of status?

Well, in Canada, the big heavy lifting is done, and we're applying that now in the states. And then when you look at other projects that we didn't know two years about or even 18 months, how do we get to a better return to the logistic of sending the trucks and filling the tank and more filling, but also a full day of eight hours work to maximize the region, you go with a truck.

There's another level of opportunity there. And what we're developing is doesn't exist in our industry.

So we're testing that in an area as soon as we have the proof of the concept then we'll start executing, and then we'll be in a better position in six, nine months, to say, okay, that's worth so much. And then 2022 we'll reduce our OpEx accordingly.

And just to answer more specifically from a sensor perspective. In Canada, from a volume perspective, we would be at a state now where roughly 70% of the volumes in Canada are now covered under sensors.

In the U.S., we have been very quickly achieving, putting the sensors in. So we're actually at 40% to 50% in the U.S.

volume now as well.

Okay. What do you think the incremental delta could be getting that up to 100% in terms of your – you talked about going down 54%, 55% on OpEx.

So in your business cases, what sort of EBITDA contribution might that mean at the delta – on the delta?

So let me answer first that you never get to 100%. Some of the things are – don't take no volume to install the system.

Some very small residential, you don't do that. Now every new install, we have an integrated – and all the new install, we had it on because we do it upfront.

It's not an extra cost much for us to do. Then to your point, whether every point of OpEx reduction in Canada U.S.

is in dollars, which we have – entered 2021, the proof of the model we're talking about will be more 2022, 2023, 2024. I don't know if we can do that right now – what is it word?

I may have to get back – yes, we'll get back to you on that.

And more importantly, too, beyond just the cost savings, I mean, once you've got the sensors on there, I mean, you locked down the customers. Do you not – it becomes a competitive moat.

Yes. You reduce your attrition a lot.

And to have a customer that is a guaranteed supply because of the connection, the digital, the information they have on their phones and their billing that they can control and understand properly. It's calling – you bring so much glue to those customers or the national account is the same.

We're saving them a ton of money. They don't need people to count things and volume and how is the billing for the volume use.

It's all digitalized. We're saving those big national accounts tonnes of people and residential the same.

So You're ending up with having so much view that those customers are not going anywhere else, unless you just treat the price so much as they start to say what the acts going on, which we don't do. So you're adding a lot of glue and becomes a very solid customer for long, long time.

Excellent, thank you very much.

Yes. Thank you.

Okay. Thank you, everyone, and – for your questions.

I look forward to speaking with you all in the fourth quarter. Exciting time.

Some timing positive M&A and growth, but we continue to execute on our growth strategy, of course, through acquisition. We know we can significantly improve the operation where that finish.

There's always a great opportunity to simplify, digitalize. Of course, no doubt, there are tough years ahead.

We have to adjust costs, which we did plenty on, and we're going to continue to look at that. Some of your questions today, we're referring to that.

Challenging time, no doubt. We're still quite – feel quite good looking at our guidance with everything that's going on.

We feel quite good in everything that's been done for our employees and our service customer. We do test and service to all our employees and customers and the quality of efficiency is improving in a tough time like that, so it could be a stuff from all of our employee.

So I know for all of you, it's hard to predict what's going on to what degree, and will help you in the next quarter with our guidance for 2021. So with that, wish you all best of luck.

Thank you for participating.