Good day, and thank you for standing by. Welcome to the Superior Plus 2025 third quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Chris Lichtenheldt , Vice President of Investor Relations. Please go ahead.
Thank you. Good morning, everyone, and welcome to Superior Plus' conference call and webcast to review our 2025 third quarter results. On the call today, we have Allan MacDonald, President and CEO; Grier Colter, Executive Vice President and Chief Financial Officer; and Dale Winger, President of Certarus. For this morning's call, Allan and Grier will begin with their prepared remarks, and then we'll open the call for questions. Listeners are reminded that some of the comments made today may be forward-looking in nature, and information provided may refer to Non-GAAP measures. Please refer to our continuous disclosure documents available on SEDAR + and our website. The dollar amounts discussed on today's call are expressed in U.S. dollars unless otherwise noted. I'll now turn the call over to Allan.
Thanks, Chris. Good morning, everyone. Welcome to our Q3 call. Now, my opening comments may surprise some of you, but let me start by saying I'm incredibly pleased with how far Superior has come in just two quarters. Changing an organization, in fact, reinventing an organization, is very difficult. I'm pleased to say at Superior, our reinvention is very much in progress. We've made permanent moves and abandoned old operating models, structures, and tactics, which had us focus on surviving instead of thriving. Now, transformation isn't linear, and it's regrettable that our impressive progress isn't apparent in our Q3 results, but that has not dissuaded us in any way or tempted us to change course. Superior Delivers is a generational reinvention of our company, and I couldn't be more proud of what the team has accomplished so far.
At our Investor Day in April, we shared a plan to transform Superior's propane business through 2027. We outlined our goal to serve our customers better by operating safely, never running people out of gas, delivering fuel at competitive prices in every market we serve, acquiring more customers and keeping them longer, and using modern technology such as AI to better manage our business, predict trends, and deliver more efficiently to our customers. As we discussed at that time, this transformation would impact all areas of operations, from our assets and locations to our distribution capabilities, pricing, and organizational structure. An ambitious effort? Yes. The team here at Superior has remained committed to our goal, and as a result, we've changed the way we operate more in the past two quarters than the past two decades.
As of Q3, I can proudly tell you that we've changed how we deliver fuel, manage churn, set our prices, and we've restructured the organization. We've centralized functions and introduced advanced tools that allow us to operate more efficiently. We've restructured our teams and reduced headcount to remove duplication in the U.S. and Canada, and created key centers of excellence in pricing, marketing, distribution, and service, to name just a few. In keeping with our recognition that leadership is a key enabler of our future, we announced our new Chief Commercial Officer, Deena LaMarque Piquion , who joined on November 3rd. Deena most recently served as Chief Growth and Disruption Officer at Xerox. With more than 20 years of global leadership experience in marketing and operation, she shares our bold vision and recognizes the potential at Superior.
I'd like to formally welcome Deena, who is here with us today as she takes on the challenge of advancing our commercial strategy and growth initiatives. One of our biggest initiatives over the past two quarters was the introduction of a completely new distribution model, which moved us from local ad hoc scheduling using rudimentary tools to a single optimized distribution approach based on AI-driven algorithms. We're now employing a company-wide tool which has the ability to create tens of millions of potential routing combinations per day, allowing us to plan better routes, avoid low-fill volumes, predict customer consumption, and ultimately deliver more fuel with fewer trucks and fewer miles driven. No small feat, especially in such a short period of time. Such change inevitably comes with some challenges, especially when we were restructuring the company at the same time.
Our team saw the bigger picture and took on this challenge, determined to build a new Superior, and I'm incredibly proud of their efforts. As you'd expect, with change initiatives of this magnitude, not everything goes perfectly. We've had our share of missteps and have learned some valuable lessons along the way. For example, as we sought to optimize propane deliveries, we had a period of several weeks where we avoided inefficient fills while still working through the rationalization of our fleet. This meant some underutilized capacity and deferred volumes. While not ideal, as it would impact our quarterly results, we stayed the course because it was the right thing to do for the long-term success of the organization. These changes aren't about chasing short-term wins. They're about building a resilient, data-driven, and customer-centric business that delivers sustainable shareholder value.
It's a foundational shift, and while complex, we're confident the benefits will be enduring. Before we dive into the numbers for Q3, I'll connect our transformation story to our current performance in propane. The changes we've made are starting to show up in how we operate. As I've stated, a key focus within Superior Delivers has been improving delivery efficiency, specifically increasing volume per delivery and decreasing and reducing frequency. To achieve this, we deferred many deliveries that would typically occur in Q2 and Q3 to optimize efficiency for our upcoming peak season. Now, partway through Q4, volumes are increasing in line with expectations, and while our business is well-positioned to benefit from improved efficiency going forward, we likely won't recoup all of these deferred profits during 2025. We appreciate that it's difficult to see these operational achievements based solely on our financial disclosures.
I'd like to share a few key performance indicators that demonstrate our progress. First, within our Customer Growth initiatives, so far in the fourth quarter, we are seeing more than a 300 basis point improvement in the percentage of sales leads that we convert to new customers, as our improved engagement and competitive pricing are gaining traction. Second, within our Cost-to-Serve initiatives, we're also seeing a 5% improvement in the number of labor hours incurred per 1,000 gal of propane delivered. Third, as I mentioned, we're seeing improvements in our fill rates, as our new approach to scheduling deliveries is increasing the number of gallons delivered per stop, setting us up to benefit from a more efficient and cost-effective structure in the future, which will ultimately benefit the customers and the markets we serve. Of course, there's still more work ahead of us.
For example, in Customer Growth, we're now working to increase our total sales leads to capitalize on this improved conversion. With churn, our prediction tools are gaining traction, but customer attrition is inherently lagged, so it will take some time until the benefits of our new programs are fully realized. For Cost-to-Serve, while efficiency is improving, we continue to refine our models across our single North American delivery platform. Finally, as noted in our press release, we reduced our non-field workforce by 12% during the quarter as part of Superior Delivers, realigning to one North American propane business. These changes resulted in some one-time costs but will drive further benefit to our organization in the long run. While the impact of transformative change takes time to become visible in financial results, especially with a seasonal weather-dependent business, we are on track. I am incredibly proud of this team.
We're staying the course and not reverting to the sins of the past, pulling forward deliveries or raising margins to meet short-term pressures at the expense of the future. Turning now to Certarus, our CNG business, Q3 reflected a challenging pricing environment with EBITDA declining relative to last year. Well-site business activity remains subdued, and we recognize that the timing of a recovery remains uncertain. Dale and the Certarus team have done an incredible job managing some very significant headwinds. Rather than speculate on market shifts, our focus is firmly on what we can control: driving cost efficiency, maintaining our market share, advancing opportunities in new markets, and allocating capital with discipline. Despite these pricing challenges, we've maintained EBITDA margins over 25%. We've reduced operating costs per MMBTU by approximately 5%, and we've increased Free Cash Flow with our disciplined capital investments.
Certarus remains very profitable, and we're using this period of diversity to push ourselves so we exit the cycle stronger and more competitive. In September, we mobilized equipment for a data center project with a major hyperscale operator. Early commissioning of power generation equipment began on schedule, typically at a rate of one or two trailers per day. We are now ready and expect regular flows to commence later in Q4. This project highlights the unique capabilities of our team, including end-to-end project management and the flexibility of our equipment platform, notably our ability to deploy dozens of mobile compression trailers with just a few weeks' notice. In addition, we were awarded a standby supply for a second data center in a separate region and successfully mobilized in October. We also continue to expand our network.
This quarter, we executed site and gas supply agreements for a new hub location in Florida, which is expected to be fully operational before year-end. Deliveries to our first customer have already begun, and we have opportunities with utility, pipeline, and other industrial applications in the region. In Houston, we've executed a letter of intent for a new hub site and are completing diligence and expect to have that location up and running in the first half of 2026. Our commercial strategy for Certarus is delivering results. We remain disciplined in our capital allocation and confident in our ability to deliver sustainable value regardless of the pace of recovery in well-site activity. Industrial revenues were up 24% year-over-year, and renewable revenues grew 42%, reflecting the strength of our value proposition and Certarus's strategy to drive growth in these markets.
Now, despite the progress we've made this year, the pricing headwinds we've faced within CNG, combined with additional costs associated with our new delivery technology and a wholesale supply disruption related to a refinery fire in California, have caused us to lower our expectations for 2025. However, nothing fundamental has changed in our business, and we remain well-positioned to deliver our long-term goals for the company. As I've said, transformation isn't linear. In closing, I want to leave you with a few thoughts. Success depends on having the right people in the right roles: engaged, focused, and energized. Our teams are embracing this challenge and leaning into change with a commitment to excellence. We're undertaking something truly complex at Superior. Transforming a business model that's been in place for decades is no small task. It requires bold decisions and disciplined execution. The changes we've made are permanent.
They're impacting our business positively, and they will benefit us for years to come. Finally, I'd like to thank our teams across North America who are helping us get there. Your resilience and dedication are the foundation of our progress and the reason we're so confident about the road ahead. Thanks very much, and with that, I'll pass things over to Grier.
Thanks, Allan, and good morning. I'll start by recapping our consolidated financial results for the first nine months and the third quarter specifically. Year-to-date Adjusted EBITDA was up 2% due to modestly higher Adjusted EBITDA from U.S. and Canadian Propane, partially offset by a small decline in CNG. Q3 Adjusted EBITDA of $7.6 million decreased $9.8 million compared to Q3 2024, driven by lower volumes in U.S. Propane and pricing pressure in CNG, partially offset by a $1.2 million reduction in corporate operating costs.
Year-to-date Adjusted EBITDA per share of $0.91 increased by 15% due mainly to higher Adjusted EBITDA, lower interest costs, and a 7% decline in the diluted weighted average shares outstanding. Adjusted Net earnings per share of $0.04 increased by $0.11, and Free Cash Flow per share of $0.51 tripled for the same reasons, with lower capital expenditures also contributing to Free Cash Flow growth. For Q3, Adjusted EBITDA per share of - $0.05 decreased $0.02 because of lower Adjusted EBITDA from our propane and CNG operations, partially offset by lower interest costs. Adjusted net loss per share of $0.41 was down $0.05 from last year due primarily to lower Adjusted EBITDA. Free Cash Flow per share of - $0.32 decreased by $0.03, driven by lower Adjusted EBITDA and partially offset by reductions in CapEx and interest expense.
Third quarter is typically the lowest Free Cash Flow quarter of the year due to seasonality in propane and in CNG. Turning now to the businesses. For the first three quarters of the year, Adjusted EBITDA on our overall propane business increased 3% to $213.8 million, driven by strong volumes and favorable weather in Q1, followed by EBITDA declines in second and third quarters, as we had expected and we discussed on our last call. Looking at the regions, in the first three quarters, Adjusted EBITDA on U.S. Propane division increased by $4.0 million, or 3%, from higher volumes in Q1. In the third u.s. propane Adjusted EBITDA was down $6.1 million from last year. The decline was driven by lower retail sales volumes as customer in-tank inventory levels continued to decline. We anticipate replenishing these volumes during the fourth quarter.
However, doing so will bring added costs, which have been reflected in our revised guidance for Superior Delivers. U.S. Propane business also continued to be affected by an outage at the Martinez Refinery in California, which also negatively impacted our margins. Canadian Propane generated Adjusted EBITDA of $ 64.2 million in the first three quarters, representing approximately 4% growth, primarily due to higher sales volumes benefiting from colder weather in Q1. In the third quarter, Canadian Propane produced an Adjusted EBITDA of $ 2.5 million, a decrease of $ 0.3 million versus Q3 2024, primarily due to weaker economic activity and more competitive pricing within industrial and commercial sectors, particularly in Western Canada. Like the second quarter, weather trends are not a factor in the third quarter as heating demand is essentially absent until colder weather returns in Q4.
Our propane transformation, Superior Delivers, contributed $5 million to results in the first nine months and is on track with our longer-term goals. However, Superior Delivers' contribution to results in the third quarter was nominal after netting out the impact of declining customer in-tank inventory levels. As I indicated, the reduction in inventory levels is temporary in nature and will normalize over time. This has caused us to lower our in-year forecast for Superior Delivers from $20 million to $10 million-$15 million. During the quarter, we incurred approximately $20 million of restructuring and other costs related to Superior Delivers. The largest portion of this expense related to the 12% reduction in our non-field workforce that Allan had mentioned, resulting in one-time severance costs of approximately $11 million. The balance of the costs are related to executing Superior Delivers, including third-party consulting costs.
This workforce restructuring was not incorporated within our original Superior Delivers targets and therefore is incremental to the $10 million-$15 million per year one-time costs we originally had expected. Furthermore, we have increased our 2027 run rate Superior Delivers target from $70 million to $75 million to reflect the incremental savings associated with this restructuring. Certarus Adjusted EBITDA of approximately $108 million over the first nine months was roughly in line with last year as increased activity in industrials and renewables, along with reduced operating costs, were offset by lower prices in the well-site business. Notwithstanding these challenges, Certarus is making significant progress in several areas, including a 5% reduction in operating costs per MMBTU in the quarter and continued execution on its growth strategy in new markets.
These achievements, coupled with our continued discipline on capital, drove significant Free Cash Flow during the first nine months of the year as EBITDA was stable while CapEx was down by more than $50 million compared with the same period last year. We remain very focused on maximizing returns on our capital and positioning the business for long-term success. Third quarter Adjusted EBITDA on CNG was down $4.6 million to $25.7 million, again mainly driven by pricing pressure in the well-site business. Moving to guidance, as Allan mentioned, we are revising our 2025 expected Adjusted EBITDA growth target from 8% down to 2%, driven primarily by lower well-site pricing in CNG, the unexpected one-time costs associated with the implementation of our new delivery tools in propane, and the temporary wholesale supply disruption.
Consolidated capital expenditures for the first three quarters were $76.7 million, or approximately half of our full-year CapEx guidance, largely due to the timing of receiving equipment in the propane business, but we continue to expect our CapEx to be approximately $150 million for the full year. For the quarter and year-to-date, corporate operating costs were $6.6 million and $20.4 million, respectively, and were relatively in line with our expectations. Our leverage at the end of the third quarter was 3.9 x, down slightly compared with the year-ago quarter. We expect to finish the year with leverage around 4.0 x, up from our initial target of 3.6x due to the downward revision of Adjusted EBITDA, as well as a stronger Canadian dollar, which has impacted our Canadian dollar debt. We remain focused on reducing leverage and expect to achieve 3.0 x by the end of 2027.
We continue to believe that share repurchases are an excellent use of capital. During the quarter, we repurchased 1.8 million shares, or approximately 1% of the outstanding common shares, below our run rate for the year as we ran through our NCIB. We have now repurchased over 10% of the company's equity and plan to renew our NCIB in the coming days and plan to resume our repurchases in line with previously indicated plans of approximately CAD 135 million per year. Despite some of the challenges we've faced this year, we remain on track to deliver value to our shareholders through substantial growth in our per-share metrics. While EBITDA growth forecasts for the year have moderated, we have maintained sharp focus on capital efficiency and have continued to benefit from what we believe is an exceptionally attractive share price by executing our repurchase program and maxing out our NCIB.
When factoring in our reduced share count, lower interest costs, and growth in Adjusted EBITDA, we expect 2025 EBITDA per share to grow by 15%. When adding this to our CapEx reductions, we expect Free Cash Flow per share to grow by approximately 70% with 2024, compared with 2024. We continue to make progress in the transformation of our business and positioning the company for continued growth in the years ahead. With that, I will turn it back for Q&A.
Certainly. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile our Q&A roster. Our first question will be coming from Gary Ho at Desjardins Capital Markets. Your line is open, Gary.
Thanks, and good morning.
Maybe just on the guidance change here. I get the Certarus piece, which is due to softer pricing, but other reasons were kind of the one-time cost related to unexpected implementation of the new delivery technology. I think Grier just mentioned the temporary wholesale supply disruption. Can you maybe elaborate on these two specifically? I would have thought kind of the one-time would be backed out of unusual costs. Also, are you able to kind of quantify each of these different components?
Hey, Gary is Grier. Let me take a shot at this, and maybe Allan will have some additional comments. Yeah, we're looking at roughly a $30 million type adjustment. The vast majority, or at least half of this, is Certarus. I think that's probably relatively clear. Just to be a little bit more helpful on the delivery tool technology.
If you think about this tool that we're implementing, it's obviously pretty sophisticated. It's got a lot of inputs, like things we're trying to optimize and things we're trying to prioritize. If you think of fill percentage on a tank, for example, it's a lot more efficient to go out and fill a tank 70% of the way versus 30% of the way. If you have more miles per 1,000 gal, that's a bad thing. That's an input. There's capacity utilization, which is a circular thing. It's input. I could go through these. There's a huge list of things that would impact your efficiency. As we fine-tune or calibrate the tool, what you're doing ultimately is kind of prioritizing or having what trumps what. It's very complicated. What we found in the third quarter is we didn't have it perfectly calibrated.
As a result, some of the things that you might have prioritized were kind of not in the right priority and got more of a waiting. We were really efficient in some categories and less efficient in others. Ultimately, what we did is we did not utilize the capacity that we had, which probably should have had more waiting. As a result, kind of had a lower in-tank inventory and lower margin. You could see it in the volumes as well in Q3. That was largely due to the delivery tool calibration we were doing. You recalibrated in fourth quarter. We think we will get the majority, if not all, of this back in fourth quarter. That is great. You get the margin back. The reason why the cost increase is because you are utilizing a much higher percentage of your labor capacity at that point.
Obviously, demand for colder weather is also peaking up. You dip into overtime and some of the other categories of utilization of your labor force, and that has a cost versus the capacity that you did not use in Q3. You will kind of get back to the same inventory level, let's say by the end of Q4. You will get all that margin back. As I say, the increase in the kind of cost per hour of labor is kind of where you lose that. We are not sure exactly what that will be. We have kind of said, "Hey, maybe that will be $5 million-$6 million." That is the change in the estimate for Superior Delivers. That is the second component.
The third component, this is really in the base propane business, is largely this Martinez issue, which so far this year has kind of cost us the better part of $3 million. We kind of think for the full year it will be a $4 million-ish type thing. If you kind of—and then there are maybe some other rats and mice there, but those are the main components. Hopefully that helps you a little bit.
Yeah. Hey, Gary, it is Allan. This inventory question is a complicated one, for sure. If I were to say it really plainly, as we went through Q3, we came out of Q3 with lower in-tank inventories at our customer premise. That meant fewer deliveries. We did not lose those customers. We did not lose that volume. We just did not deliver it in Q3. We will regain that volume in Q4 and Q1.
What we did do, though, is we incurred the cost of some latent capacity in our distribution network in Q3. I mean, if you think about the volume, we'll recover the volume. We'll recover the gross margin that goes along with it. We can't go back into Q3 and recoup the cost that we incurred for that excess capacity that we carried. When you're making changes of this magnitude, as I said in my comments, while you're restructuring the organization, you're going to have lessons learned. We're making changes to an organization. Because of the seasonality of our business, our window, our sort of our go period to make changes in the company is actually really small. You can't make changes in—you got to basically black out Q4 and Q1. That gives you two quarters to make changes.
A three, four-week delay in these kind of initiatives is not unusual, but for us, it has an impact. That's really all you're seeing here, is just the variation of those tank levels. Rest assured, we did not lose those customers. We did not lose that volume, and we'll recover it.
Okay. Got it. That's really helpful. Allan, while I have you, you mentioned words like reinvention, transformation, etc., in your prepared remarks, hired a new CCO. Can you maybe talk about high-level the culture change? What's been some of the challenges you've faced and early successes you see internally? I have noticed that several of these hires are outside the propane industry. What's the trade-off between bringing perhaps a new perspective versus industry experience?
That's a really insightful question, Gary. The pre-work that we did for Superior Delivers really started with challenging convention.
At its core, this is a business that's operated kind of in isolation. It hasn't really had a lot of external disruption. I can tell you that we have the fundamental things you already know. We have low market share when you compare us to the entire addressable market. Our customers are incredibly profitable. Yet we were working in a pretty dated operating model that was very local and very manual. You think the benefit of scale was never really capitalized on. When you have a generation of employees that have worked in the propane business for 20, 25 years, trying to rally them to embrace the potential within this business is really hard because they know what they know. They're really good at what they do.
I think the biggest first piece of the culture change was saying, "Look, if we start to look at the business a little bit differently and we allow our colleagues to do complicated things like pricing once, do complicated things like route optimization once on behalf of the whole company, we can employ some really impressive tools that will get us some efficiency." That was a journey because that's not dissimilar to all of you. That's a show me—excuse me—a show me story. I can tell you that as we move through that, the shift that I've seen from anecdotes and legacy thinking to data-driven decision-making is pretty astonishing. Really astonishing, actually. I can't give our team enough credit.
We have asked them to do all of these Superior Delivers initiatives when we were restructuring the organization and bringing all of these groups together to a single propane company. In the disruption of having a new boss and having new responsibilities, we are also using new tools, and we are working in new geographies. I was not being in any way disingenuous when I said I am incredibly impressed with the progress that we have made. In terms of strengthening the leadership team, there are a couple of things at play there. In the greater scheme of things, we are not the largest company. We have to always balance talent that we are promoting from within, which is about 70% or 80% of the changes that we have made in the organization, with introducing people from outside who have different experiences and skill sets.
Within the propane sector, you're unlikely to find someone who has sophistication in AI-driven algorithms around customer engagement or someone who's—there's not a lot of people who've worked on optimizing customer experience with call centers and sort of other digital engagement technologies. What we're trying to do is not only bring in fresh points of view and leadership talent that's got a fresh perspective, but also acquiring skills that aren't resident within the industry. That, married to people with great depth of experience in the industry, like Tommy and others, has really had a big, very positive impact on the organization. I hope I answered your question. It's probably a longer answer than you're looking for, but everything begins with culture. We wouldn't be where we are if we hadn't seen a marked change in terms of our cultural engagement here.
Absolutely. Okay. No, thanks.
Those are my questions. Appreciate it.
Thanks, Gary. Good to talk to you.
Thank you. Our next question will be coming from Daryl Young at Stifel. Your line is open, Daryl.
Hey, good morning, everyone. I wanted to switch gears a little bit to Certarus and just get a sense of how you're thinking about the oil and gas exposure into 2026, maybe shifting of the fleet or maybe what you're seeing from a potential rationalization of the competitive landscape currently, just given the oil and gas market seems like it's going to be weaker for a while.
Daryl, hey, it's Allan. Good morning. Let me offer a couple of strategic comments, and then I'll let the people that run the business actually talk. Dale's sitting here right next to me.
The one thing I'll tell you about Certarus that I'm incredibly pleased with is Dale and his team are running this business so that they exit the cycle stronger and more competitive than they ever have before. Dale and I were just talking before the call started. Sometimes, through periods of adversity, afterwards, you reflect on them and say they might have been a blessing in disguise. The success that Dale and his team are having in expanding this business into new markets, into adjacent categories, I don't think would have happened if it weren't for the challenges in the oil sector. They've restructured the business so it's much more competitive at lower price points. That's opened up the opportunity to explore other markets and have them be really attractive. I can't say enough good things.
This company is getting stronger and stronger through this last 12 months, and they're on a great trajectory. I couldn't be more pleased. Having said that, obviously, there's a lot of questions about the oil s ector, and Dale has some I'm sure he'd love to share with you.
Yeah. Hi, Daryl. As Allan said, we're extremely proud of the way the team is working to deliver for our customers safely and reliably while also improving our efficiencies and driving down our cost structure. As you probably know, just from an overall oil macro, which drives a lot of the North America activity, we were enjoying oil prices north of $70 in the first quarter of the year. I think recently those have dipped below $60. A lot of our customers have not provided a kind of spending forecast into 2026 yet.
It is difficult for us to say exactly what to expect in that space. Many have talked about maintaining production or maintaining spending. We know that the blue chip folks are going to be in the best position to provide work. We have a very account-focused strategy where we are using our capabilities, our experience, our fleet size, our hub network, our digital tools to be the best provider, to be the most reliable provider at a cost-effective price point. Of course, they are all interested in reducing their operating costs, and we are in a great position to help them do that. As Allan mentioned, we have focused on our own procurement, and we have focused on our own efficiencies to take advantage of the market circumstances to improve our competitive position. There has not been a lot of change in the competitive environment.
We're still, as you can see from the margin pressure, it still remains intense. We're very focused on kind of building the capabilities and strengthening competitive advantage to maintain market share and be the best able to serve in whatever the competitive environment unfolds.
Okay. Got it. In terms of just the ERP route optimization tool, effectively, I guess if I were to summarize it, has it led to an incorrect fill rate that you're now playing catch-up and effectively paying overtime wages to execute? I guess, is there a risk that customers are underfilled coming into the winter heating season that could result in more customer churn in the future?
Hey, Daryl. It's Allan. No, I wouldn't describe it as playing catch-up. We have some capacity, some sort of in-tank level that's slightly lower than it was last year.
The catch-up and Grier's comments were how fast you sort of return to normal or more historical tank levels will be a factor of the winter that we face. We're going to do everything in our power, obviously, to make sure we don't run customers out of gas and put people in any kind of jeopardy. That's our first priority and very much conversations we're having, as a matter of fact, as soon as this meeting ends, to make sure that's not the case. The speed of recovery that we have will depend on the winter that presents. If we have a fairly normal winter, we'll recover the lion's share of it. If we have a heavy winter like we did in Q1 of last year, some of that volume will get deferred to later in 2026.
Make no mistake that making sure that customers' tank levels are sufficient to get them through their season of demand is really important. One thing I would sort of add to that is we've made a big shift away from we monitor customer tank levels, of course, but no two customers are the same. In our vernacular, while that's an important metric, we've added to it days to empty because you can have two customers at 30%. One has five days to empty, and one has five months to empty. This part is kind of a little bit of insight into the complexity of just how far we've come. There will be customers that we're calculating every customer's days to empty, and there will be customers we're reacting to with a lot of urgency.
There are other customers that we know that we can fill on a regular basis when the capacity allows and when the routes are in their vicinity. We are trying to be very, very calculating and mindful of how we sort of recover this volume gap.
Okay. That is helpful. Thank you. I will jump back into queue.
Thanks, Daryl. Good to talk to you.
Our next question will be coming from Nelson Ng of RBC Capital Markets. Nelson, your line is open.
Great. Thanks. Good morning, everyone. I think in some of the commentary, you talked about mitigating customer attrition with price management. Can you just give a bit more color on that initiative, given that I think it is one of the headwinds? Will a lot of customers require a lower propane price or margin to retain them?
Is it more on the retail side or industrial side?
Thanks. Hey, Nelson. Good to talk to you. There are a few things going on there. Number one, the biggest contribution that we have made to improving retention is not raising our prices, which we have historically done year over year and which our competition continues to do. We have not had any price increases sort of categorically in the last, what, 12-18 months? That is step number one. The impact that has on churn is it does not necessarily price increases agitate churn, so we have removed that, but it does not necessarily improve churn. What we have done following up from that is in centralizing our call center and customer experience group, we have now got a group that are completely dedicated to customers who are at risk of churn.
We've got some predictive models that are in place now that we continue to refine that predicts customers that are at risk. We have interventions where we reach out to those customers and discuss issues, whether they be pricing-related issues or service-related issues. We have some remedies in place to make sure we retain those customers. We've implemented, in some instances, price match guarantees where when customers are calling in and having been offered a better price, depending on our new pricing models, which allow us, on a per-customer basis, to be able to calculate our optimal return and our optimal pricing based on their distance, their volume, their density of the community they live in, we're able to be much more aggressive. All of these things are sort of single-instance tools that you apply to each customer.
We are getting much better at remediation, where I think the next stage in our evolution is doing that at scale and really tackling the churn opportunity that we have. I do not want you to, what I said in my remarks was that these changes, the churn lags these changes. Often, customers are considering moving suppliers because of a price increase that happened maybe 12 months ago or a service instance that happened 12 months ago. Bear in mind that when we fill a tank, customers do not anticipate a change until they, for the most part, empty the tank. If you are a seasonal customer, that could be 12-24 months. That was really the comment about the lag between these changes and the impact we have on churn.
I do not want to leave you with the impression that churn has in any way changed materially in the negative over the last year because that is not the case.
Okay. Do you have any KPIs on churn and attrition, or is that something more for given the lag, is that something you will look to disclose at a later date?
Yeah. It is something we will look to disclose at a later date because I think one of the things we talked about historically was around the work that we have done, rationalizing our tank inventory in-field, cleaning up old data sources, have inactive customers that, for all intents and purposes, have not been a customer for years, but were still included in our customer accounts. Normal things you have when you grow through acquisitions.
Getting that data up and getting reliable trending data and year-over-year comparative data is still a work in progress. We're getting there, but it's not completed yet. It'll be a while yet before we're able to share reliable churn data.
Okay. Thanks. Just switching gears to Certarus, can you talk about the market dynamics in the sector? I think previous commentary mentioned that there was an ample supply of MSUs in the market, particularly for Q2 and Q3. Can you talk about how well utilized the fleet was in Q3? Was the reduction in EBITDA partly due to losing some market share, or is it mainly reducing price to maintain market share?
Hi, Nelson. It's Dale. It would be the latter. Price reductions required to maintain a consistent market share. The utilization of trailers was very similar to second quarter.
The fleet was not fully utilized in the third quarter. We have trailers we can put to work. As you know, the seasonal demand, as it relates to winter-type work and applications, picks up for us in the fourth quarter and first quarter. We will be in a sold-out position as we head into the heavier season.
Okay. Thanks. Just one other one on Certarus. I think Allan mentioned that you guys are serving or will soon be serving two data center sites. Can you just talk about how long the expected contract term would be? Are we talking about a few months or a few quarters?
Yeah.
We're really excited about the data center and had a press release in the quarter, getting one under our belt and demonstrating to the industry that this is a viable option to deal with pain points that they're experiencing in terms of getting power and fuel to get the data center up and running. You're probably seeing a bunch of things about that. In terms of your question, months to quarters is the right way to think about it. I mean, everyone's going to be a little different. Of course, the first that we talked about, there is a plan to have pipeline supplied fuel there sometime in 2026, but they're ready to go sooner than that. As Allan mentioned, we've got a unique set of capabilities to be able to go after an opportunity that requires that much fuel, requires a fleet of trailers.
It requires mobile compression. It requires end-to-end project management. We are really excited about how we are positioned in that space. As you know, there is a lot of capital flowing into the construction of data centers, and there are discontinuities in fuel supply and energy supply that we are well positioned. These will, in many cases, not be permanent supplies. They will be looking for permanent infrastructure. We have a really unique solution that we can kind of step in and be able to alleviate some pain points at a cost-effective way that really kind of brings an end-to-end solution all the way from experience and having sort of the fleet of gear that can be mobilized on a time schedule that provides value for the customers.
Our focus right now is doing a great job in sort of building a strong reference case and sort of becoming better known in that ecosystem and further developing that pipeline.
Okay. That's great, Color. One last question, and maybe it's for Grier. It looks like you're a little bit behind on deleveraging this year. I know deleveraging is a combination of outright debt reduction and EBITDA growth. In terms of capital allocation, does it make sense to allocate some capital from buybacks to debt reduction, or how do you prioritize the two?
Yeah. I also know I think no change, right? I think we're still very committed to share repurchases. It is a balanced plan. As I said in my remarks, we are still very committed to the leverage.
Our plan is to get to 3.0x by the end of 2027. As you know, that was previously kind of mid-2027. With the reduction in cash flow from kind of the lower EBITDA this year is a factor, it'll take a little bit longer. That is still a very important goal for us. I mean, look, the share repurchases so far have been very good, and we'll continue to do that. We think it's an important part of the overall strategy. I would say no change. We're still committed, but debt reduction and the overall leverage reduction is still very much a priority. We believe that we can balance both these. There's no change in that regard.
Okay. Great. Thanks. I'll leave it there.
Thanks, Nelson.
Our next question will be coming from Robert Catellier of CIBC Capital Markets. Robert, your line is open.
Yes. Good morning. Thank you for your fulsome responses this morning. I wanted to ask that capital allocation that Nelson just asked, but maybe I'll ask the other part of it. I don't want this to sound any more dramatic than it is. In terms of capital allocation, do you see any further risk to the dividend, or are you just looking at the other levers and trying to balance repurchases and leverage?
Hey, Rob. It's Grier again. Look, I think the dividend is not something that we're discussing here at all. It's part of the overall return to our shareholders, and we think that's an important part of the overall mix here. Yeah, no, that's just not a topic that we're discussing right now. You can assume that, yeah, that's part of the go-forward plan.
As I said to Nelson earlier, I think the strategy here is the same as what we would have said at investor day. I mean, the allocation, the percentages, the things that we're focused on, there's no change whatsoever. If you think of what we're talking about today, we're talking about things that are temporary in nature, some well within our control, some less so. In the longer run, we still are very much on the same path here. All the things that we've been saying all along, we're very much along those paths. Yeah, no change.
No, I'm surprised to hear it. Just on the MSUs and specifically in 2026, what is the outlook really for adding more MSUs to the fleet given the amount of pricing and margin pressure?
We haven't taken a decision on adding MSUs.
As we mentioned, we'll be in a sold-out position as we go through the winter season. If there's opportunities to make good returns on capital adding to our fleet, we may need to do that as we open up additional hub locations. As Allan mentioned, we signed agreements for a piece of real estate and a gas supply in Florida. We're in process of moving gear to that location. We have a customer there already, a few others that'll be coming online over the course of the next 90-120 days. As we anticipate opening additional hubs in early 2026, it's too early to say specific plans for MSU adds for 2026.
Okay. That's understandable. Last one for me. As you guys look forward, obviously, the plan you're executing on Superior Delivers is not measured in months or quarters.
As you look through the fullness of that plan and you achieve your objectives, is there a permanent reduction in working capital to the business?
Yeah. Maybe I'll start. Allan may have some comments as well. Being completely honest, I think it's probably a little too early to tell. What we've baked in our plans is that any working capital changes would be insignificant. I mean, look, this is obviously something that we'll continue to look at if there are great opportunities to be better there. I think there probably are. We're focused on the bigger prizes at this point. There's a lot here, right? I think when you look at the list of initiatives that we're focused on, one of the battles here is to try to not take on too much. There's a lot there that can go on for a while.
I think when you get further down the list, are there some working capital things in there? I would say that's highly likely. Are they bigger than the things we're working on today? I think you could confidently say probably not. Yeah, maybe at the margin, there are some things, but I don't have anything more intelligent than that to say at this point.
Okay. Thanks. That's it for me.
Thanks, Rob.
Our next question will be coming from Patrick Kenny of NBCM. Your line is open, Patrick.
Thank you. Good morning, everyone. Just back on the leverage discussion. I know we've talked in the past about asset sales as a potential plan B to help shore up the balance sheet.
Just wondering if, given some of the challenges being experienced in California on the propane side or obviously in the Permian within Certarus, if you're maybe reconsidering high-grading the portfolio at all, not only to right-size leverage over the near term, but also just to set these businesses up for perhaps less volatility down the road?
Yeah. No, look, we feel really comfortable with the capital allocation plan. We think it's a great use of capital to continue buying back shares at this level. Keep in mind, it was always a balanced approach. We are very focused on also burning the leverage down. The switch in the dividend, which basically went kind of straight to share repurchases almost for kind of dollar for dollar.
Keep in mind, we're also driving more cash flow through the business, particularly in the case of Certarus, where we brought the CapEx down significantly. That business will produce a bunch of cash flow. There are a bunch of things we're doing here. In the next six months, we're going to see quite a lift in the EBITDA and cash flow from the propane business. No, I mean, we're very much along the same path. I hear what you're asking, for sure. We discuss it regularly. The reduction in leverage is really important to us as well. There are other priorities here. No, we're still on the same path here and committed to that.
Okay. I guess on Certarus specifically, and we've all seen the oil and gas customers pull back in terms of Permian drilling activity and overall CapEx.
Just wondering on the Canadian side of the border, if you might be seeing any signs of customers accelerating activity, just given the added egress across the basin as well as LNG projects being declared in the national interest now. Just wondering how your team might be able to, I guess, capitalize on this Canadian growth story over, say, the next three to five years.
Thank you, Patrick. This is Dale. No, great observation. We have the leading market position in the Canadian well site business, have multiple hubs that serve that market, have very good relationships with some of the folks that you are talking about that are involved in those. While a smaller market, of course, in relative size to the Permian, an important one for us, of course, the business was established in Alberta.
We feel really good about our position there and are continuing to invest in competitive advantage to grow with those opportunities.
Okay. Thanks for that. I'll leave it there, guys.
Thanks, Patrick .
Our next question will be coming from Ben Isaacson of Scotiabank. Your line is open, Ben.
Thank you very much and good morning. Just one question for me about the bigger prize that you mentioned. You've talked a lot today about everything being on track and confidence in delivering value. As you reflect on some of the setbacks, though, to balance sheet leverage or Superior Delivers, can you talk about your confidence level in achieving 2027 Free Cash Flow of $1-$1.10? What is the cadence or the path to get there?
Because presumably, it seems that the slope is a little bit higher to meet that target, but that's also in the face of headwinds that you mentioned. I was just hoping you could connect the dots. Thank you very much.
Hey, Ben. It's Allan. Good morning. I'm going to just offer a comment on the trajectory of Superior Delivers, and then I'll let Grier take the hard part of the question. I said in my opening comments that transformation isn't linear. It's always super frustrating when you can't see what I see. I know it's frustrating for you guys too. The fact that we were able to change wholesale our distribution model here at Superior in two quarters, for me, is an incredible accomplishment. People said we'd never be able to do it. You're all smart people.
You know these things are not like a light switch where you flip it on and everything works perfectly. We would be misrepresenting ourselves if we said it was. It is in place. It is working. We are continuing to refine it, and we are starting to see the results. In terms of honestly, I think some of the biggest challenges that Superior Plus represented, we have tackled in 2025. Culture shift, bringing the organization together as a single business was much more complex than the average person would appreciate. Really tackling our distribution model, being able to get our hands around pricing, bringing on new Chief Commercial Officers is a huge win for us. I do not see the overall program being in jeopardy.
In fact, we're all having to operate with a lot of discipline to not be distracted by some of the short-term challenges that invariably come with a transformation of this size and then the headwinds that are created that we don't control and remaining enthusiastic and determined about what the ultimate prize is. I'm as comfortable now as I'm probably more comfortable now than I was in April, to be perfectly honest. You had a specific question that Grier was going to answer for you.
Yeah. I would agree with everything that Allan said. If we look at kind of what's changed between investor day and today, it's really kind of three things, right? The CNG business obviously hasn't performed to our expectations. Largely, that's been the oil markets and completion activity, which has had an impact.
In our model in the long run to get to 2027, if I look at what needs to happen, do we need to get back to the same oil prices and same level of activity that was happening at the start of this year? Certainly, it would help, but we do not need to have that. If you listen to what Dale has said, we are trying to make this business better. The team's done an incredible job trying to make things more efficient, be better at what we do, and diversify. There are a couple of pretty good examples of diversification, and we will continue to do that. The business will be better. I think to get to 2027, I would say we have made this business better since when we talked at investor day.
In a stable environment, if all this activity and the oil prices were the same, I would actually say that we'd probably be performing even better than what we said for 2027. A lot of it's dependent on what happens in markets that are very difficult for us to control. What we can control is making this business better. That's the first thing I would say. On Superior Delivers, this is a one-time thing. As I say, we'll get this volume back most likely in the quarter. There's a one-time cost there. If you look at the exit rate leaving this year, it's very much intact with what we originally said. If you look at the health of the program, the size of the prize at the end, the inventory, the sale, the funnel that we use, this stuff's all very healthy.
I would say we feel as good today as we did back at Investor Day. I would say that's the same number. I mean, yeah, we brought the number up slightly. It's not that big. I think hopefully that will show the level of confidence that we have in the program and what we think will be achieved in 2027. I would say no change on that. The third item, Martinez, this has been a pain for us this year. Latest I've heard is that this will come back online the start of next year, and that should go away. Look, would there be potentially other refinery things that may come along? I mean, we'll always have to continue to evolve this business and assess things that are kind of coming at us and do the best things.
No, I think we're not going to get into the fine-tooth comb of pluses and minuses here or there, whatever. I would say largely, no, the 2027 stuff's very much intact. With that, I would say it is somewhat dependent on what happens in oil and gas markets that will have an impact. Maybe I was—
That's great. Yeah. Thank you very much. That's helpful.
Thanks, Ben. Those are market pressures that blow winds that blow both directions. It could just as easily, because of the same eventuality, and the positive being overachievement. To Grier's point, we're just focused on running the best business we can and thinking about the future. Sorry, Ben, did you have another question?
No, that's it. Thanks so much. Appreciate it.
Thanks, Ben.
Thank you.
Our final question will be coming from Aaron McNeil of TD Cowen. Aaron, your line is open.
Hey, morning. Oh, thanks for squeezing me in. Grier, I can appreciate the comments and the prepared remarks, including the clarity on the miss on the guide this year. Superior has now missed two years in a row. Just in that context, can we expect that Superior will employ more conservative guidance assumptions in 2026? An obvious one for me is just the assumption of five-year average temperatures, which historically overstates heating degree days. Again, I know you can't get into specifics, but maybe you could highlight the broader approach and your appetite for potentially starting the year with a lower growth rate that you can increase as the year progresses if things play out as you expect.
Hey, Aaron, it's Allan.
My surprise, I'm going to jump in on this one. We like Grier talk. First of all, thanks for joining us. We would not end the call, of course. We are looking at everybody. One of the—you are absolutely right. Guidance has been real tricky for us. Our guidance is tied to our budget, and that has been really tricky for us. Part of the genesis of Superior Delivers was the sophistication with which we ran the business. If you start with how easy is this business to predict, right out of the gate, you have the cyclicality in the propane business and the weather factor. I hate five-year average, by the way, so I'm with you on that one. You have cyclicality in the oil and gas sector, which is incredibly difficult to predict. Those two things are not a great starting point.
Historically, our capability to predict the performance of the business, I think, has been really challenged by understanding the relationship between price, margin, customer acquisition, and your cost fluctuations. A lot of the work we've been doing, and Grier and his team have done a great job at this over the past year and a half, is understanding our business better. When you understand it, it becomes more predictable. I think what you've seen over the last year is a combination of a business that's tough to predict, but also one that didn't have very sophisticated tools at its disposal. We're not in the ninth inning on that yet, but we're much better than we were historically. I think you'll start to see that our ability to forecast our own performance is markedly improved.
Our ability to predict what happens in the external market, of course, is always going to be an X factor. Grier and I both are much more leaning on the conservative side than the ambitious side in that regard.
Yeah, for sure. I would agree with everything that Allan said. Look, at the end of the day, we're trying to create realistic internal budgets that are not super easy and sandbag-type things, but at the same time, things that are realistic and achievable. We save for these things. It's very hard to see some of these external factors happen, right, to be fair. We put the thing together with the best information that we had, and we'll continue to do that. It is somewhat difficult to see things that are, as I say, kind of from the outside.
The Superior Delivers one is one that really I would kind of focus on that was more us, right? And that's a big program. There's a lot of stuff in it, and we didn't see that. Yeah, do we maybe add a reserve for things like that? We'll certainly have more sightline, though. If you think of where we are today versus where we were back in February when we announced our guidance, we didn't know nearly as much about Superior Delivers as we know today. That'll be quite helpful. The base business is actually we've been quite close so far. If you look at where we are kind of year to date, the base business estimate has been very close to right on. Now, having said that, we had a good idea what the weather looked like in first quarter.
Second and third quarter, the weather's not as much of an impact. We'll see what kind of happens in fourth quarter. Yeah, look, we did our best. I think that's—I would say we'll do our best again in trying to give our people here a shot at realistic targets and letting the market kind of see what we see. It is difficult to anticipate all these things. I kind of look at the three major factors here, and the two external ones were pretty tough for us to see. The internal one, it's a big program. It's complicated. Should we maybe see that? I guess maybe you could say that. We'll know a lot more, for sure, as I say, going into next year. I think the budget will be different.
From my perspective, I would not say, "Yeah, we are going to set a way easier budget next year," or numbers that are way easier to hit. I think we will continue to try to set what we think are realistic targets and try to have our people motivated to do great stuff and also give the market the best idea of what we think the business is going to do.
Yeah. It is funny because Q2 and Q3, man, they are so unforgiving. They are so small that anything, in a lot of companies, your margin of error would be negligible in a quarter. Because of the way our business comes in, it is really unforgiving to the smallest of miscalculations or external factors that you do not control, which is just frustrating. I mean, it is the business we are in, so we have to live with it .
Okay. Fair enough.
All very good points. Dale, maybe just another one for you on Certarus. I just want to confirm that the current data center opportunities today contemplate gas delivery only. If the answer is yes, what's your appetite to sort of branch out to electric power and sort of just given that several other competitors are starting to do that with the quarter?
Yes. Aaron, confirming that it is for gas supply only. I mean, really the full system to provide fuel to whatever their power generation of choice is. As you know, actually providing the power is a different capital profile than what Certarus has right now. There are a number of people that are doing that already.
Our approach has been to build relationships with those people, the people that have the power generation assets, and be able to provide a complementary service that helps them operate reliably when pipeline supply is not available.
Great. Thanks, everyone. I'll turn it back.
Thanks, Aaron. Good to talk to you. Sorry, operator, go ahead.
Sorry. I'm showing no further questions at this time. I'd like to hand the call to Allan MacDonald, President and CEO, for closing remarks.
Thanks, operator. And thanks all of you for your time and attention. You've all been on this journey with us, and we're continuing to persevere. Something that Grier and I talked about earlier this week that's not lost on me is it's always easy to focus on the challenges in front of us, and sometimes we forget to reflect on how far we've come.
Our results so far in 2025 certainly are not as—they did not meet our expectations. Having said that, year to date, this company is growing. It is growing despite the challenges that exist within the business. When I joined two and a half years ago, this was about, "Hey, how do we transform Superior into an organic growth story?" This company is growing without acquisitions, without raising margins, without pulling deliveries forward. I am incredibly proud of the team. For us, that was a really big milestone to pass through. We still have another quarter to go, and that is okay. We are well on our way in this journey. I think when we reflect on it, we will say it was not easy, and there were difficult times through it, but perseverance was what made the difference.
You can rest assured that you have a management team that is incredibly focused on the long-term health of this company. With all that, thank you all very, very much, and look forward to talking to you at our next quarterly call in between. Take care.
This concludes today's program. Thank you for participating. You may now disconnect.